Focused on Every Journey Annual Report and Accounts for the Year Ended 2 July 2016 Contents About Us

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Focused on every journey Annual Report and Accounts for the year ended 2 July 2016 Contents About us

Strategic report Go-Ahead is one of the UK’s leading public 2 Go-Ahead at a glance 4 Group Q&A transport providers enabling more than a billion 8 Chairman’s statement 10 Group Chief Executive’s review and Q&A journeys each year on our bus and rail services. 16 Our business model 18 Our core business units At Go-Ahead we place great importance on 20 Our markets partnership, adopting a collaborative approach 23 Our strategy and key performance indicators 40 Managing risk with governments, local communities and 46 Finance review 50 Business review strategic partners; developing and operating Governance services that create long term value for all of us. 58 Introduction to corporate governance 60 Board of directors 62 Corporate governance report 71 Audit committee report Our leadership team 80 Nomination committee report 84 Directors’ remuneration report 104 Directors’ report 107 Directors’ statement of responsibility Financial statements 108 Independent auditor’s report to the members of The Go-Ahead Group plc 112 Consolidated income statement 114 Consolidated statement of Chairman’s statement Group Chief Executive’s review Finance review comprehensive income 115 Consolidated statement of changes in equity See more on page 8 See more on page 10 See more on page 46 116 Consolidated balance sheet 118 Consolidated cashflow statement Our integrated approach 120 Critical accounting judgements 121 Notes to the consolidated Sustainability and corporate responsibility are integral to our strategy and the way we operate at every financial statements level of the business. This is our fourth integrated annual report which aims to present a comprehensive 159 Company statement of comprehensive view of the Group. income Our strategic priorities 160 Company statement of changes in equity 161 Company balance sheet 162 Directors’ responsibilities in relation to the Company financial statements Society Customers Our people Finance 163 Notes to the Company financial statements To run our companies To provide high To be a leading To run our business Shareholder information in a safe, socially and quality, locally employer in the with strong financial environmentally focused passenger transport sector. discipline to 173 Shareholder information, financial calendar responsible manner. transport services. deliver sustainable 176 Corporate information shareholder value.

See more from page 23 onwards

Our Board Governance Our financial results Our Board has a wide range of We are committed to a robust We are committed to skills and responsibilities. governance framework. transparent and clear reporting.

See more from page 60 See more from page 58 See more from page 112 onwards onwards onwards

Go-Ahead online For more information about The Go-Ahead Group and our operating companies, visit: www.go-ahead.com

Linkedin.com/company/The-Go-Ahead-Group-PLC Twitter.com/TheGoAheadGroup Creating long

term value for report Strategic all stakeholders Governance Financial statements Shareholder information

Our strategic report for the year ended 2 July 2016, as set out on pages 2 to 57, and the directors’ report, on pages 104 to 107, have been reviewed and approved by the Board of directors.

Andrew Allner, Chairman

8 September 2016

The Go-Ahead Group plc I www.go-ahead.com 1 Our performance at a glance Go-Ahead at a glance

It has been a year of financial progress in all three divisions. Our market positions have been strengthened, with organic growth supported by contract wins and extensions. As part of a targeted programme, we are pleased to have won new business in Singapore and Germany. We continue to explore similar opportunities in these and other selected markets.

Review of the year

Financial highlights Sustainability highlights • Overall results slightly ahead of management expectations • 95% sustainability rating assigned by Business in the Community • Achieved £100m bus target; adjusted operating profit* up • Highest Carbon Disclosure Project score amongst our peers 8.0% to £100.4m • First FTSE 350 company to achieve the Fair Tax Mark for • Regional bus adjusted operating profit* up 9.4% to £53.3m. responsible tax practice Passenger growth in the second half of the year • First transport Group to achieve the Carbon Trust triple accreditation • London bus adjusted operating profit* up 6.3% to £47.1m despite for carbon, water and waste a significant reduction in QICs income • Rail adjusted operating profit* at £57.0m with a margin of 2.3%. Contribution to the DfT in the year of £222.4m Economic contribution • Statutory operating profit in bus and rail was £91.2m (2015: £80.7m) Total revenue £3,361.3m and £26.2m (2015: £16.1m) respectively • Strong cashflow and robust balance sheet Payments to suppliers £1,697.4m • Proposed full year dividend increased by 6.5% or 5.85p to 95.85p Staff costs inclusive of PAYE £1,123.3m National Insurance costs £92.2m Strategic and operational progress Net rail contributions to DfT £222.4m • Difficult year in GTR – working closely with the DfT and Network Rail Dividends paid to shareholders £39.4m to improve services to customers Capital expenditure £113.9m • Sector-leading customer satisfaction score of 89% in regional Corporation tax payments to government £24.8m bus operations Finance costs £17.6m £30.3m • Record passenger numbers in rail division Retained in equity • Shortlisted to bid for the West Midlands franchise • Retained high levels of customer satisfaction at London Midland of 86% • Entry into new overseas markets with contract wins in the Singaporean Total shareholder return (rebased to 100) bus market and German rail market • Adopted the voluntary ‘Living Wage’ across the Group, ensuring all The Go-Ahead Group plc FTSE 250 Index Peer group (average return) employees, regardless of age, earn at least £8.25 per hour exceeding 300 the ‘National Living Wage’ requirements 250 * Adjusted results exclude amortisation, goodwill impairment, exceptional operating costs, and the incremental impact of IAS 19 (revised) as shown on page 46. 200

Directors’ remuneration 150 We report a single remuneration figure for executive directors which 100 includes salary, annual performance-related bonus, long term incentive bonus and other benefits. A substantial part of executive directors’ remuneration is 50 performance-related and linked to key performance indicators. 09 10 11 12 13 14 15 16 Our directors’ remuneration report can be found on page 84

2 The Go-Ahead Group plc I Annual Report and Accounts 2016 Group key facts

Total revenue (£m) Total adjusted operating profit (£m) Adjusted EPS and the impact £3,361.3m +4.5% £157.4m +16.9% of IAS 19 (revised) report Strategic 220.5p +21.3%

Impact of IAS 19 (revised) Impact of IAS 19 (revised) Operating profit (before amortisation, goodwill Adjusted EPS including impact impairment and exceptional operating costs) of IAS 19 (revised) Regional bus London bus Rail Statutory operating profit Basic EPS 4,000 2,423.8 2,571.8 2,702.4 3,215.2 3,361.3 200 110.2 102.5 118.8 134.7 157.4 250 141.9 139.6 172.6 181.8 220.5

3,500 2,498.0 53.3 2,397.4 200 Governance 3,000 37.0 150 31.0 1,901.9 24.0 1,810.3 20.0 164.0 167.2 2,500 1,732.5 150.8 162.3 15.6 120.4117.4 150 18.1 148.6 14.6 109.5 114.7 22.0 2,000 15.8 103.2 123.8129.5 125.3 100 95.6100.5 96.8 117.6 121.6 86.7 1,500 80.2 100 1,000 457.9 487.6 50 378.4 423.9 449.7 50 500 312.9 337.6 350.8 359.9 375.7 Financial statements 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 Group revenue rose £146.1m, or 4.5%, in Adjusted operating profit increased by £22.7m, Adjusted earnings per share (EPS) rose by 38.7p, the year, with growth in both bus and rail. or 16.9%, ahead of the Board’s expectations. or 21.3%, reflecting increasing operating profit Adjusted operating profit excludes the and taking the non-controlling interest in our rail incremental impact of IAS 19 (revised), division into account. Adjusted earnings per amortisation and goodwill impairment. share excludes the incremental impact of IAS 19 (revised), amortisation and goodwill impairment. Shareholder information

Dividend paid and proposed Carbon emissions per Customer satisfaction (%) per share (p) passenger journey (kg) Regional bus 89% -1ppt 95.85p +6.5% 0.82kg -2.34% Rail 75% -1ppt Regional bus Rail 100 100 95.85 1.0 0.97 92 90.0 90 90 90 89 84.5 0.85 0.84 83 80 81.0 81.0 0.8 0.83 0.82 0.82 80 78 77 76 75

60 0.6 60

40 0.4 40

20 0.2 20

12 13 14 15 16 08 12 13 14 15 16 12 13 14 15 16

In line with our progressive dividend policy and The year on year rate in this metric has improved Our regional bus passenger satisfaction scores the interim dividend, a final dividend of 67.52p by 2.34% and we continue to make progress remain industry leading. The overall score in has been proposed. This would provide a total for towards our 10% reduction target by 2018 our rail division was impacted by the significant the year of 95.85p. on a 2014/15 baseline. We have already made infrastructure improvement works taking significant improvements in this area and carbon place as part of the government’s £6.5bn emissions per passenger journey have reduced Thameslink Programme. 16.11% on a like for like basis since our original 2007/08 baseline.

The Go-Ahead Group plc I www.go-ahead.com 3 Group Q&A Responding to a changing world

Evolving regulatory, socio-economic and technological factors impact on our sector. Go-Ahead seeks to be agile and flexible in order to effectively position itself and manage change. We are committed to building a sustainable competitive advantage. We have an established UK business and remain focused on our core markets, while looking for value adding investments elsewhere.

1 What does Brexit mean for the UK bus and rail sector? page 5

2 How is Go-Ahead positioned to face the uncertainties surrounding Brexit? page 5

3 What is the Bus Services Bill and its potential impact on the market? page 5

4 What does the future hold for rural bus services? page 5

5 Congestion on the roads is a problem. What can be done? page 5

6 Some parts of Britain’s rail networks are operating at full capacity – what are the plans to alleviate these limitations? page 6

7 How is public transport keeping pace with technological change and innovation? page 6

8 What is your approach to remuneration and paying a fair price for success? page 7

9 What are the Board’s plans for capital returns? page 7

4 The Go-Ahead Group plc I Annual Report and Accounts 2016 1 What does Brexit mean for the authority and bus operator. Go-Ahead’s ongoing innovations and investment in local transport services have repeatedly been UK bus and rail sector? recognised through industry-leading customer satisfaction scores.

It is currently unclear what Brexit means for UK economic growth We continue to work with the DfT on the important secondary and transport volumes. There are a myriad of factors that affect use legislation that underpins implementation of the Bill. It is vital that of public transport. In the case of an economic slowdown it is a robust evaluation framework be included in the legislation to reasonable to anticipate that if unemployment rises and incomes ensure that any local authority proposing regulating services has are squeezed, passenger numbers in some areas of the sector could to demonstrate that it is in the interests of both customers and decline, especially for discretionary travel. However, there are a taxpayers – a key lesson learnt from the findings of the independent number of substitution effects that can increase demand. For Quality Contracts Scheme Board on the proposals for report Strategic example, among commuters an increase in part time work could Tyne and Wear. result in more journeys. Rather than fly abroad more people may 4 holiday within the UK using domestic bus and rail. A weaker pound What does the future hold will put upward pressure on the cost of fuel, which historically has for rural bus services? led to a modal shift from private car to public transport. Local authorities are responsible for tendering local bus services in Beyond the macroeconomics, the impact on transport depends rural parts of the country where population and demand are lower partly on what deal the British government negotiates with its EU and commercial services are not viable. Councils know how counterparts. The transport sector is heavily regulated at the EU important buses are for their communities and local economies and Governance level but it is expected that many of the EU’s standards and would like to protect them. However, reductions in local authority regulations the UK will continue to apply and, in many instances, the funding have resulted in significant cuts to bus services supported standards and regulations implemented by the UK will be similar, if by local authorities. Many across the country are reluctantly taking not identical, to the EU’s. The UK is likely to remain part of a difficult decisions to scale back services and review subsidised liberalised and integrated European rail system and we fully expect routes as a result. Fortunately, as part of the government’s Spending that the ability of UK transport companies to tender for EU/EEA Review in 2015 it was announced that the Bus Service Operators rail franchises would be virtually unchanged by Brexit, irrespective of Grant (BSOG) would be protected in the near term. BSOG is one the model adopted. of the elements enabling operators to keep fares affordable and Financial statements 2 How is Go-Ahead positioned to face the continue running services that might otherwise be unprofitable and therefore vulnerable to cancellation. But the longer term outlook uncertainties surrounding Brexit? for many of these services remains uncertain. Go-Ahead has a longstanding commitment to delivering high quality and value for With a robust business model, Go-Ahead is well positioned. The money services to our local markets. Together with local authorities Group’s rail business operates largely on commuter routes in and we are looking at new and innovative ways of running buses against out of London. Rail profits are also less sensitive to changes in this background of funding cuts and assisting them to find ways that

passenger volumes than bus profits. GTR is a gross cost contract, bus services can be operated sustainably to avoid additional Shareholder information while Southeastern and London Midland operate within a pressure on local taxpayers. profit-share mechanism and so are to a large extent insulated from revenue movements in the short term. We believe that any 5 Congestion on the roads is a downturn would be capable of being absorbed within the problem. What can be done? remaining life of the London Midland and Southeastern contracts. In bus, the Group has regional businesses that are well positioned This is a significant issue facing the industry in many parts of the geographically, while London bus operations do not bear country and the role of local authorities is crucial. Our bus revenue risk. Enhanced customer service offers will also be companies are working together with their local authorities to increasingly important to help differentiate our services from ensure that travelling by bus remains an attractive and viable choice, those of our competitors. with bus priority schemes being actively managed and close liaison 3 What is the Bus Services Bill and its and collaboration during roadworks and local events. potential impact on the market? A 2016 Greener Journeys report states that in the last 50 years bus journey times have increased by almost 50% in the more congested The Bill is legislation that enables local authorities outside London urban areas and, if we had protected bus passengers from the to take a number of different approaches to regional bus services. It growth in congestion there would arguably be between 48% and is not about mandating any particular approach to the management 70% more paying bus passenger journeys today. of bus services. Nor does it impose wholesale reregulation. The Bill grants devolved powers to regulate services, subject to certain criteria being satisfied. Importantly, it will also build on the strengths and successes of existing partnership arrangements. A continuing flow of private sector capital investment will remain crucial to meet important public policy objectives, as well as keep pace with demographic change and new technology that is rapidly transforming the passenger experience. In regions where bus usage is growing there is typically a close partnership between the local

The Go-Ahead Group plc I www.go-ahead.com 5 Group Q&A continued

An increasing volume of roadworks, public realm and cycle From 2018 Thameslink services will also connect with Crossrail superhighway improvements in London are causing congestion and services at Farringdon. Crossrail, Europe’s largest construction some routes operated on behalf of TfL have slowed considerably. project, will be fully complete by 2020 and will increase central This has impacted on the number of passengers and our London London rail capacity by 10% as well as reduce journey times. bus division’s ability to earn Quality Incentive Contract (QIC) GTR, which operates the Southern and Thameslink routes, is payments in the past year. The report estimates that for strengthening its fleet maintenance and progressing driver approximately one third of London’s routes the decline has been recruitment and training to increase punctuality and meet the huge more than five times the 1% UK average in the past year. We have driver training requirements arising from the introduction of new been working with TfL to address this and towards the end of the trains. Bringing new trains into service boosting capacity and financial year we were pleased to have seen some return of QICs improving reliability are all part of a larger modernisation of the due to congestion easing on some routes. railway that GTR is undertaking. It is organising its people to be Smartcards and m-ticketing (mobile phone app tickets) have a more customer-focused and on-hand when and where passengers strong role to play in reducing overall journey times by reducing the say they need them most. Regrettably this has contributed to union dwell time necessary at bus stops for cash transactions. Research unrest at the company, impacting on services over the spring and shows that dwell times can make up to 25 to 30% of total journey summer of 2016. It is important to stress the Thameslink times. With more than 850 thousand smartcards in circulation and Programme, and the modernisation associated with it, is a an increasing number of m-tickets being used, Go-Ahead has long once-in-a-generation scheme addressing the issues of phenomenal led the way to provide customers with easier, more convenient and passenger growth and underinvestment in the infrastructure. flexible ways to pay for and speed up their journeys. 7 How is public transport keeping pace with 6 Some parts of Britain’s rail network are technological change and innovation? operating at full capacity – what are the plans to alleviate these limitations? The pace of change in the transport sector has increased in recent times. Innovations and inventions such as automated vehicles that Every day more than 4.5m journeys are made on UK rail services once seemed a distant possibility are now a tangible reality. with the number of passengers doubling in the last 20 years. On Modernisation is necessary to remain a sustainable and significant parts of the rail network such as the Southern and relevant business. Thameslink routes passenger numbers have risen by 40% and 32% The transport industry also needs to be ready to respond to respectively in the past five years. Additional train services and change as well as pre-empt and instigate it. Uber and other ventures longer platforms have been added in a piecemeal fashion to try such as BlaBlaCar are challenging the status quo of the transport to keep up with the growing demand, but due to the lack of industry, and we will continue to partner with technology investment in additional infrastructure capacity the punctuality companies to develop apps and other services to improve journey of services has inevitably declined over the same period. On the planning and on-the-move information to create a smoother end-to Southeastern network south London services also are constrained end journey experience. Go-Ahead continually upgrades and by limited network capacity. updates its apps using customer feedback and testing to ensure the Across the UK the government and rail industry are investing user experience is agile, responsive and intuitive. We are now billions innovating and working to improve reliability, increase focusing on personalisation where the tool recognises the individual capacity and modernise retailing and information. There are several customer’s travel patterns and offers suggestions for the journey major projects coming to completion in the next few years that will they wish to make. cut delays and congestion. Similarly, investment in design and manufacture such as self-drive The recent East Coast £348m Hitchin flyover, removing a major capability, electrification and greater automation is advancing more bottleneck for services on the East Coast main line, delivers more quickly than for larger vehicles such as buses and coaches. The than 1.4bn punctual journeys annually compared with up to 600m motor industry is investing heavily in making greener, fuel efficient in the year 1997/ 98. The government’s Intercity Express vehicles and it is important that bus manufacturers do not lag programme on the Great Western line will see new larger trains on behind. We are the first operator in London to introduce a fully the Great Western line from 2017 and on the East Coast main line electric fleet at our Waterloo depot supported by TfL. We invest in from 2018. low emission buses across all our operating companies and our average fleet age is 7.8 years, helping to ensure we reduce carbon The Thameslink Programme, underway now, is long overdue, and emissions and contribute to improving air quality in the the £6.5bn project is transforming one of the busiest stretches of communities we serve. railway in Europe. New trains will add more than 30,000 seats in the Thameslink core, between Blackfriars and St Pancras, and passengers departing from Bedford to London will benefit from 2,500 more seats in the morning peak. Journeys will be more reliable with trains every two to three minutes in each direction through central London at the busiest times.

6 The Go-Ahead Group plc I Annual Report and Accounts 2016 Focused on technology to improve customer journeys With more customers using smartphones and other devices to organise their leisure and travel plans, we need to make sure that our information is easily accessible online for customers. According to 8 What is your approach to remuneration Ofcom* smartphones in the UK have overtaken laptops as internet and paying a fair price for success? users’ number one device. Some 93% of the adult population own or use a mobile phone with 71% having a smartphone. So we are focused on using mobile technology to personalise and improve our It has long been established that retaining engaged and motivated customers’ experience. employees is not only the right thing to do, but also financially beneficial. Losing key people is a risk to success and over the past five years we have introduced comprehensive succession Planning and making journeys plans across the Group to consider our current and future Go-Ahead is providing elements of its data to enable app developers capability requirements. to include realtime transport information in journey planning apps. Google transit planner now includes some 85% of Go-Ahead’s regional report Strategic We believe in being a fair employer and we are pleased to say we bus realtime operational data. We know for many journeys the bus will have adopted the voluntary Living Wage of £8.25 per hour across compare favourably with the private car, particularly where local all of our companies. This exceeds the government’s National Living authorities have bus priority measures in place. Similarly, the rail Wage of £7.20 per hour, introduced in April 2016. While pay is, of industry’s timetable and realtime data is available both for industry course, an important way to motivate and retain employees we online web planners and also for third parties. Our new Gatwick also aim to create long term benefits for our people. In the past Express app includes airline arrival and departure times – as well as year, we launched the second Go-Ahead Sharesave scheme in four realtime train information aimed at providing the most useful years, aimed at encouraging our people to invest alongside our information for people going to the airport. shareholders, increasing their vested interest in the Group’s success. Navigating large stations can be daunting for some infrequent travellers. Governance In a challenging environment, our executive leadership team has So Go-Ahead, together with Network Rail and technology companies, delivered strong performance – with a focus on the long term have installed Bluetooth beacons into London Bridge station to provide sustainability of the business. Our approach to remuneration is customers with intelligent and dynamic ways around the station – linked to the delivery of our strategy and focused on consistently particularly useful during the station’s rebuild. This trial is part of improving performance. We have set out a clear strategy with a ‘HackTrain’ 2016 event and is sponsored by Go-Ahead and other comprehensive set of actions to improve returns. We carefully transport companies and is an opportunity for technology start-ups consider elements that make our business successful in both the to use their entrepreneurial innovation for the benefit of the rail Financial statements short and long term and we place emphasis on long term industry customers. improvements that are measurable and based on a range of issues across the organisation. We hold our executive leadership team Almost 40% of our regional buses have free Wifi for customers to use accountable for those elements that are within their control and while travelling. In the past year more than 100 GTR stations have been there is a strong alignment between the Group’s performance and installed with free Wifi and the new 108 Gatwick Express carriages also the remuneration of executive directors. have Wifi installed. It is inevitable and understandable that our industry, providing a vital public service, will be under scrutiny, and our approach is to be Paying for travel transparent and open about executive remuneration. Read our full While some people may still wish to pay with cash, for increasing Shareholder information directors’ remuneration report page 84. numbers of our customers, payments are made with smartcards, m-tickets (tickets on mobile phones) or through online secure systems 9 What are the Board’s plans such as Paypal and Pingit. As high street shops take contactless for capital returns payments so Go-Ahead will be upgrading its onboard bus ticket systems to enable contactless payments to be made also. A full range of tickets available online means that customers no longer need to The Board was pleased to propose another increase to the full year queue at ticket offices, although there is more to do to support dividend this year, recognising the importance of our dividend to customers to feel confident they are buying the correct, best value the investment decision of many of our shareholders. fare for their journey, online. The increase in bus profitability over the last five years, and the Our rail apps enable customers to claim ‘delay repay’ compensation strengthening of our balance sheet, means that the Group now has when their journey has been delayed – and work is underway for this more choices about how we allocate capital. process to be automated to provide a more personalised service. Our approach is designed to ensure capital is used effectively. Our priority is to sustain profits from existing businesses and meet Social media commitments in franchises or other contracts. Furthermore, we Social media enables customers to help each other with advice on consider the use of capital to provide for risks and contingencies, where to go, what to avoid, and what to expect. With the advent of bid for opportunities in agreed target markets and support new services such as Airbnb, apps such as Tripadvisor, it is clear that franchises or contracts, in addition to making attractive returns peer-to-peer shared opinions have a strong value. Company to shareholders. Our capital allocation policy is continually reputations can be diminished by consumers’ appetite for sharing when under review. things go wrong. People are willing to share their opinions and recommendations via social media with complete strangers and these comments are often trusted more than official channels of information. All our operating companies actively engage with customers using social media and aim to use this to increase the depth of the relationship they have with customers by answering individuals’ comments and questions. Across the Group this data is useful and we analyse social media trends to help us shape our services to better suit our customers’ needs. * Ofcom 2015 Communications Market Report.

The Go-Ahead Group plc I www.go-ahead.com 7 Chairman’s statement

Andrew Allner, Chairman

Dear Shareholder Your Chief Executive, David Brown, has recently led a review of Go-Ahead’s vision, beliefs and attitudes, which underpin our We have delivered robust results for the year slightly ahead of culture. Through talking to a wide cross-section of stakeholders, our expectations and have achieved high levels of passenger including employees and industry partners, we are making sure satisfaction in the majority of our businesses. However, we have we are clear what we stand for today and what we need to seen challenges in the year with particular difficulties in the stand for in the future. We believe that the trust our people GTR franchise, which has faced operational issues and capacity and our customers place in us must be earned every day and that is why we are committed to taking care of every journey. More information constraints associated with the Thameslink Programme from on page 46 the start. This complex franchise, on which more than one million passenger journeys are made every weekday, is being Performance modernised to meet ever-growing demand. Regrettably Overall, the Group delivered robust financial performance in industrial action has compounded disruption on the network the year, demonstrating the effectiveness of our long standing and, as a result, we have not provided the levels of reliability strategy of providing high quality and locally focused passenger and service our passengers expect. As previously announced transport services. We achieved good profit growth in our bus our margin on the GTR franchise over the life of the franchise business, despite a number of headwinds and, as planned, have is now expected to be lower than originally forecast. met the £100m profit target when adjusting for the impact of IAS 19 (revised). Importantly, customer satisfaction in our Your Board is very focused on addressing these issues along regional bus continues to lead the industry. In London we with key partners. We are sorry that the introduction of remain the largest bus operator. changes, which will be of great benefit in the longer term, is creating inconvenience and hardship for passengers. In rail, our Southeastern and London Midland franchises I appreciate how frustrating and difficult it is when things recorded strong financial results. London Midland was also go wrong. successful in securing a direct award contract and achieved a strong customer satisfaction score of 86%. Early in the year Your Group has a highly experienced and committed Southern and Gatwick Express were integrated into GTR, management team with integrity, a clear strategy and a strong resulting in the creation of a new business and new focus on improving passenger satisfaction. I believe that, with leadership team. continued government support, we are well placed to address the challenges and to bring about the improvements in service During the year we continued to invest in future growth with to which we aspire. further disciplined capital investments across the Group to make our existing business more attractive to our customers. Contributing to society We will continue to invest in the talent and skills of our people, At Go-Ahead, the contribution we make to society is through training and development, and by enabling them to important to us. We need to ensure the Group is in a sound network across the Group to learn from each other. We will financial position and that our investors and lenders make also continue to invest in long term relationship building. Our appropriate returns for the capital and debt they provide and future lies in our ability to engage with stakeholders and the risks involved. This then enables us to focus on our role develop appropriate solutions to their needs. in society which is to provide reliable and high quality Go-Ahead is developing an increasingly diverse portfolio of public transport. operations that will reduce our dependence on any single Your Board spends considerable time on shaping our Group’s market or contract and ensures we have excellent knowledge culture, which guides us as we renew and advance the business. of, and access to, a range of new opportunities. This year we Doing the right thing for our customers has always been a core are pleased to have won business in two overseas markets. In part of who we are, and drives our ongoing improvement. Singapore, Go-Ahead was successful in its bid for a five-year bus services contract, while in Germany the Group was awarded two contracts for rail services.

8 The Go-Ahead Group plc I Annual Report and Accounts 2016 Dividend “Doing the right thing for our customers has always been Our underlying business performance and confidence in the a core part of who we are, and drives our ongoing medium term outlook have enabled the Board to propose a 2016 final dividend of 67.52p per share, supported by bus improvement of the organisation.” division profitability. Combined with the interim dividend of 28.33p per share, the proposed total dividend will be 95.85p per share, an increase of 6.5%. The final dividend will be paid on As a public transport business it is ultimately the quality of the 25 November 2016 to all shareholders on the register at close service we provide that will underpin our leadership in the of business on 11 November 2016. transport sector. To meet these challenges, our employees

work hard to meet our customers’ needs. I would like to report Strategic Your Board has a clear capital allocation policy for the Group express the Board’s appreciation and thanks to all our which is continually under review. We consider our policy for employees for their contribution to another successful capital structure and how surplus cash is to be deployed year for the Group. between ongoing operations, investment in new franchises and new businesses, ongoing dividends to shareholders and In March we welcomed Patrick Butcher, who was appointed possible further returns to shareholders. Our objective is to to the Board as Group Chief Financial Officer. Patrick brings retain an efficient capital structure, whilst maintaining financial a wealth of industry experience, having joined from Network flexibility in the event of downside scenarios or new Rail where he was Group Finance Director since 2009. He has investment opportunities, and to provide additional returns made an excellent start and is already making a valuable to shareholders where it is prudent to do so. contribution to the Group. Governance I would also like to thank the previous Group Finance Director, Robust corporate governance Keith Down, for the significant contribution he made in his four It has always been important to me that Go-Ahead’s Board years with the Group. functions as a key strategic partner and sounding board for management, challenging us all to be better. We pride ourselves Looking ahead on our reputation for conducting business activities in the Whilst the past year was challenging, good progress has been highest ethical and professional manner, guided by our made on many fronts. These developments provide a solid Financial statements corporate governance principles and practices as well as strong base from which to take advantage of future opportunities. Board oversight. The composition of the Board, with its diverse Our strategy of increased marketing, use of technology, the range of skills and experience, is one of our key strengths. The development of partnerships with local authorities and relationships we have fostered, both within and outside the improved customer service is already producing results and will boardroom, have strengthened Board dynamics. be the key to driving this business forward. A strategy of Your Board takes an active role in ensuring best corporate selective investment in operations outside the UK will increase governance practices. During the year, we implemented the our resilience and provide us with further growth opportunity. recommendations from the independent external Board Shareholder information With oversight from the Board, the GTR management team evaluation conducted in 2015 and also undertook an internal will continue the modernisation programme and focus on Board evaluation. These reviews help us to continually improve resolving issues locally. and adapt to the changing needs of the business and ensure we are always operating in accordance with best practice. The current fiscal year has started with change in the broader More information political and economic environment. Go-Ahead will continue on page 40 Our people to act to meet the needs of a changing world and prudently At Go-Ahead we recognise that remuneration should be balance strategic growth with sound risk management closely linked to performance. Whilst we have largely achieved practices. It remains crucial to maintain the advantages that the financial and strategic targets set at the beginning of the well-managed public transport can bring to society, and to year it is clear that we have not delivered the required levels provide people with the mobility that is essential to our of passenger service on our Southern routes. As a result, economic and social needs. However working patterns and the David Brown, who in my view is an exceptional and committed performance of different sectors of the economy may fluctuate, Group Chief Executive, made it clear he does not wish to be those needs will continue to provide opportunities for the considered for an annual bonus this year and declined a public transport industry to serve its customers to mutual salary increase. advantage. Go-Ahead is a high quality operator with leading market positions in the bus and rail sectors. Looking ahead, At Go-Ahead we firmly believe in a pay-for-performance I am confident we will continue to deliver value for our culture. In order to improve our focus on improving customer customers, employees, shareholders and other stakeholders. service and demonstrate our commitment to passengers we have made important changes to our remuneration arrangements. Last year we embedded customer service targets within long term incentive awards. In addition, this year we have introduced passenger satisfaction measures in our annual bonus plan. Andrew Allner, Chairman

8 September 2016

The Go-Ahead Group plc I www.go-ahead.com 9 Group Chief Executive’s review

David Brown, Group Chief Executive Partnership and collaboration are key to public transport

It has been a year of financial progress in all three divisions. everything we do. We strongly believe that today’s challenges More information Our market positions have been strengthened, with organic are best met by working together. While seeking to maximise on page 51 growth supported by contract wins and extensions. As part the benefits of operating together as one large organisation, of a targeted programme, we are pleased to have won new our companies are locally managed and form an integral part business in Singapore and Germany. We operate in relatively of the communities they serve. Testament to our collaborative resilient markets, and have a good balance between contract approach and understanding of local markets are the high and passenger revenues. levels of customer satisfaction in our regional bus operations, which remain the best in the sector at 89%. Focus on partnership Public transport is vital to building a strong and sustainable At Go-Ahead we believe that public transport is about economy. Our services have continued to ensure that millions partnership. After almost 30 years of building Go-Ahead’s of people are able to get to work and access key services. presence, the Group has established a valuable network of Over the past year Go-Ahead has made a significant relationships, and a depth of market understanding and contribution to the UK economy through the 27,500 people knowledge that cannot easily be replicated. Building we employ, the £222.4m generated by our rail operations for relationships with passengers, central and local government, the government, and £24.8m paid in corporation tax. We are employees, industry partners and other stakeholders has also pleased to have introduced the voluntary Living Wage as always been core to the Group’s strategy and central to a minimum, irrespective of age, across the entire Group.

10 The Go-Ahead Group plc I Annual Report and Accounts 2016 Our vision social services. These businesses have also taken the initiative to Our people are critical to the success of the Group and comprehensively examine their services through the eyes of we believe our new vision, attitudes and beliefs, once fully the customer and understand how they can be better. embedded into our corporate culture, will influence every In the regional bus market the regulatory framework is also aspect of our day-to-day activity and how we work. The evolving with the Bus Services Bill that is passing through common purpose of taking care of every journey will create Parliament. It is a very different Bill from the one envisaged 68.8% advocacy among our customers, encourage people to use our a year ago as a result of the industry’s engagement with the Group profit from services and ensure our people feel valued and appreciated. DfT, with the Passenger Transport Executives and other the bus division stakeholders in order to protect the ethos of partnership

Performance working. It is vital that our bus companies remain embedded in report Strategic local communities. We continue to work with the DfT on the Bus important secondary legislation that underpins implementation At the core of the Group is our bus division, which delivered of the Bill. Toward the end of 2015 we welcomed the report another good trading performance. This is the result of strong and findings of the independent Quality Contracts Scheme operations and service quality, as well as investment in new Board on Nexus’s proposals for Tyne and Wear, which vehicles. Our bus operations have significant flexibility to concluded that the scheme failed to meet all the necessary £100.4m respond quickly to changing market conditions and to ensure statutory public interest tests. We believe that the overriding Adjusted bus profit we remain resilient. While this is a mature market, lesson of Tyne and Wear is that rigorous and independent opportunities for organic growth exist, as evidenced by the scrutiny of major transport schemes is a necessity. Clear Governance increased volume in the London market and the gains that accountability must be in place where there is a fundamental have been achieved in other parts of the country as a result change to the provision of bus services to safeguard the of investment and targeted marketing. interests of customers and taxpayers. With reductions in overall We have had a record year of profits from our regional bus public spending, a continuing flow of private sector capital division, which delivered adjusted operating profit* of £53.3m. investment will remain crucial to meet important public policy Our sector leading margins, and the achievement of our objectives, as well as keep pace with demographic change and £222.4m new technology that is rapidly transforming the passenger £100m target, are a reflection of the hard work at our Contribution to expectations. Our strength in this sector ensures that we can Financial statements operating companies. The business is maintaining its strong the DfT position by focusing on improving the service, stimulating be agile and are able to pursue other opportunities as and passenger growth and developing relationships with local when they arise. authorities. We invested £72m in buses in the year, maintaining the average age of our fleet at 7.8 years. We also continued Rail to invest in our services with more Wifi and USB charging Our three rail franchises carry about a third of all passengers points on buses, advertising, promotions and offers, and in the UK and we have more than 19 years’ experience of social media campaigns. managing complex commuter franchises and delivering

industry-leading projects. Shareholder information Go-Ahead remains the largest bus operator in London, with its growing population of residents and commuters. Over the past The overall financial performance of our rail business was year roadworks and excessive congestion have limited our robust and slightly ahead of the Board’s expectations. Full year ability to earn Quality Incentive Contract bonuses. However, adjusted operating profit* for our rail businesses was £57.0m the underlying business is strong. We have retained our 24% (2015: £41.7m). We are committed to the long term market share with annual mileage of around 85 million miles. development of rail travel and are investing to improve services In the second half of the year we opened a new £7m bus for passengers. In partnership with the DfT, Go-Ahead is at the depot, strategically located in Barking. forefront of some of the largest long term improvements in rail infrastructure in the UK. By understanding the varying needs of different customer The GTR franchise has experienced a difficult year groups we have shaped our bus networks and services to More information match demand. Innovative partnership working also continues operationally, and we share the frustration of customers who on page 15 to bring benefits for customers and stakeholders. Actions taken have experienced repeated disruption to their journeys and to maintain our position include: Brighton and Hove bus we apologise for this. The complex nature of the franchise company championing accessible travel with the provision of has created significant challenges. The major Thameslink wheelchair access on 100% of the fleet and other on-board infrastructure programme will ultimately bring vital extra innovations for disabled passengers; entry into the inter-urban capacity, but it has caused large scale disruption through market in Oxford with the launch of a new Birmingham restricted network capacity, particularly in the phase of major express service; the installation of new ‘happy or not’ customer works at London Bridge. Management continues to work feedback machines on Plymouth City bus services; and a closely with industry partners on implementing the complex creative response to reduced public funding by Go South change programme. This includes the introduction of more Coast to provide a unique combination of commercial and spacious trains and the evolution of the customer service role onboard and at stations across the GTR network, in adherence

* Adjusted operating profit is reconciled to operating profit before amortisation, goodwill impairment and exceptional operating costs in the finance review.

The Go-Ahead Group plc I www.go-ahead.com 11 Group Chief Executive’s review continued

to commitments in the franchise agreement with the DfT. The web and mobile platform provides highly personalised, We have instigated one of the largest driver recruitment realtime information to help customers find the best value programmes ever undertaken in the industry, but training a ticket option available. Following introduction on Southern driver takes around 14 months so customers do not see the and Thameslink routes, On Track has been rolled out to all benefit of this straight away. We are confident that the of Go-Ahead’s rail operations and integrated within its mobile Thameslink Programme will deliver real benefits for customers app and ‘the key’ smartcard. Voluntary Living and the wider community. The DfT values the experienced Whilst we were disappointed that our bids for the new Wage adopted management team in place at GTR which is best placed to Trans-Pennine Express and Northern Rail franchises were steer these changes through. We are committed to the unsuccessful, the Board still believes that the UK rail sector can delivery of the franchise, enhancing service and building trust. provide long term growth opportunities for the Group. The UK We remain focused on delivering improvements, listening rail industry clearly has some considerable challenges, both to our customers, and working with stakeholders to ensure financial and operational. We are an established operator and the franchise has the resources needed to respond to will be seeking to develop our role in the future of the sector. growing demand. Southeastern delivered a strong trading performance and Overseas contract wins continued to operate at maximum profit share, with payments As part of a targeted programme, we are pleased to have won of £39.9m made to the government in the year. For the new business in Singapore and Germany. With efficient and remainder of the franchise the focus is to continue to improve effective transport remaining a priority for governments, there the service for customers. The stated desire of the London are further opportunities overseas. We continue to explore Mayor and the London Assembly to devolve responsibility for similar opportunities in these and other selected markets. the metro routes to TfL requires Secretary of State approval. If given, Southeastern would work with TfL and the DfT Go-Ahead was awarded a five-year contract to operate bus to ensure a smooth transition. From 2017, Go-Ahead’s services in Singapore and is set for a successful launch of the rail development team will be working on a bid to retain 25-route bus service operation from September 2016. the franchise. Singapore’s bus contracts system is largely modelled on London’s and, as London’s largest bus operator, Go-Ahead London Midland continued its trend of improvement, reflected has the right experience and expertise to deliver high quality in strong customer satisfaction scores that have repeatedly services in Singapore. We look forward to competing in the increased. The franchise, which Go-Ahead has been operating next tender tranche of bus services, to be awarded early since 2007, has been successful in terms of both operational next year. and financial performance. Since 1 April 2016 the franchise has been operating under a new direct award contract. We were also successful this year in our aim to enter the Management is focused on ensuring that committed obligations German rail market, having been awarded two contracts to are delivered in a timely manner. In the fourth quarter operate rail services in the Baden-Wurttemberg region from Go-Ahead was pleased to be shortlisted to bid for the June 2019 until 2032. The German passenger rail market new West Midlands franchise beginning October 2017. generates annual revenue of around €9.6bn and we are well placed to capitalise on future opportunities in this market. During the year, our joint venture On Track Retail launched its new online ticket sales system ‘On Track’ in October 2015. A resilient business Following the result of the EU referendum vote in June we are More information Training and development entering a period of economic uncertainty. The true impact of on page 5 the vote is yet unknown, but it will weigh on the economy, and More than £18m spent on training the transport industry is not immune. Nevertheless, the and development of characteristics of our business make it resilient and relatively 27,500 employees well positioned for change. Our strength is our portfolio of operations with robust revenues in less economically sensitive bus markets in the UK. Our London bus business has no direct exposure to passenger revenues, and has an excellent record of contract retention. In “We remain focused on delivering continued the regional bus business, experience of previous slowdowns in improvements, listening to our customers, the economy suggests that overall demand for bus travel is resilient. The flexible commercial nature of the industry further and working with stakeholders to ensure enables it to match supply to the level of demand. Go-Ahead’s the GTR franchise has the resources position is reinforced by substantial investment in new fleet needed to respond to growing demand.” during the past few years, helping to improve the attractiveness

12 The Go-Ahead Group plc I Annual Report and Accounts 2016 and marketability of our services. In rail, we operate commuter routes in and out of London that are less discretionary in Our new vision, beliefs and attitudes nature. Their unique position in relation to revenue support Created in collaboration with employees at different and profit share mechanisms will considerably mitigate the levels across the Group and external stakeholders, impact of any change in passenger numbers on our these shape our focus, how we make decisions and rail revenues. how we behave. As the external environment remains uncertain, we will be proactive in ensuring that the business remains robust. Our business offers value-orientated public transport services that More information Our vision on pages 32 to 35 are vital to the economy. We will remain focused on the report Strategic delivery of existing services, while being agile to identify opportunities that this changing landscape brings. ‘A world where every journey is taken care of’ – is our Whilst there are clear links between economic activity and new vision. Today we are striving to provide a reliable demand for our services, transport also enables growth. service people can trust. Tomorrow we will be building Change presents challenges for every part of the economy, stress-free, predictive and seamless connected journeys. transport included. It also provides strong motives for fresh We will take care of our customers’ every need thinking, and opportunities for innovation. In these times of transforming everyday journeys into positive experiences. regulatory, economic and social change, our future lies in our ability to engage with stakeholders and customers and develop Governance solutions for their changing needs. With its wealth of knowledge and experience gained, Go-Ahead is well qualified and highly motivated to rise to the challenge. Our beliefs

Outlook Go-Ahead has made substantial progress over the past year. We believe in trusting people, being can-do people,

The outlook and opportunities for the business are positive. Financial statements building relationships and being one step ahead. Our strategy is clear and our business model robust. Our businesses have a track record of demonstrating the benefits that the private sector can bring to public transport. We will continue to work closely with partners at all levels to deliver value for money for our customers and stakeholders. Our attitudes The new financial year has begun with similar trends to the second half of 2015/16. We expect continued moderate revenue growth in our bus division. Significantly reduced fuel Shareholder information costs will help offset headwinds such as contract reductions We are accountable, down‑to‑earth, collaborative from lower local authority contracting. In London, we expect and agile. to see a year on year improvement in QICs payments as We believe in trusting our people to do their best roadworks and congestion stabilise, which will help offset and be accountable for what they are delivering. higher depreciation. Trading in the Southeastern and London Midland franchises continues to be robust and help offset We believe in being can-do people, who solve problems weakness in GTR. We continue to explore overseas and are pragmatic with a down‑to‑earth attitude opportunities in selected markets. towards each other. We believe in building relationships within our businesses, with our suppliers, partners and stakeholders and working collaboratively to achieve a greater good. David Brown, We believe in staying one step ahead of our Group Chief Executive competitors and emerging trends by working in an agile manner to identify opportunities to lead change. 8 September 2016

The Go-Ahead Group plc I www.go-ahead.com 13 Group Chief Executive’s review continued

Topical questions from our shareholders answered

14 The Go-Ahead Group plc I Annual Report and Accounts 2016 How do you account for your resilient and have been deemed safe by rail safety experts without generating clear returns. We look for performance in regional bus? and the independent regulator which oversees markets that fit with our strategy and risk safety on the railway. The new role of onboard appetite and to which we can bring knowledge, Our margins in regional bus now stand at 14.2%, supervisor will still have safety training but the experience and expertise. When we started the journey to our £100m main role of these employees is to help profit target in 2012, our regional bus margins We are looking forward to running services in passengers and improve onboard customer were at 11%. I am very pleased that this profit Singapore shortly and, in line with our devolved service. There are no job losses or pay cuts, in fact growth has been achieved sustainably. Revenue approach, have created Go-Ahead Singapore – we need more people for our onboard growth has been driven by strong contract an autonomous local bus company employing supervisor roles. income, while fares have increased in line with around 900 people, ready to operate 25 routes inflation. Go-Ahead has been successful because New modern trains which allow the in the Loyang region. We have also established report Strategic we continue to invest in our services, making life introduction of modern working practices are a rail company in Germany that has won two easier for our customers. We do it, for instance, being introduced across the UK and Europe concessions in the Stuttgart region and will begin through more Wifi, more audio-visual passenger and will bring beneficial changes for customers. running passenger services from 2019. Germany information, online methods of payment and has the largest rail market in Europe operating improved realtime information. We are giving What is the future of franchising? over 50bn passengers kilometres and generates passengers more choice and more flexibility, and The case for railway franchising is a strong one annual revenue of around €9.6 billion. are very pleased to have the joint highest with net payments to the government totalling customer satisfaction score in the UK of 89%. over a £billion* and an NAO report (November What next after Target 100? Partnership working with local authorities is how 2015) stating that competitively awarded Achievement of the £100m target this year is Governance we have always conducted our business and it franchises, if managed well, could increase returns a testament to the hard work of our people continues to bring benefits for customers. By to the taxpayer**. across the Group. We will continue to challenge understanding the varying needs of different our operating companies to grow sustainably by markets we have successfully shaped our services Privatisation has been a success and government focusing on customer service and becoming the to match demand. investment has combined with commercial drive first choice for journeys. We have established to create the safest and fastest growing railway in businesses, based primarily in the south east, Europe. The number of passengers has doubled What are you doing to address the where there is economic strength to support

but this has created limitations on capacity that Financial statements issues at your GTR franchise? continuing returns. However, we see some of our are being addressed now with billions being spent The GTR franchise has been a challenge to run growth in the future coming from places such as to upgrade the network, improve reliability and since its inception in September 2014. The our overseas contracts in Singapore in the modernise retailing and information. It is industry and DfT accepts that the £6.5bn coming year and Germany in a couple of years’ estimated that around a third of the four percent Thameslink Programme upgrade including the time. We will also be submitting a strong bid for annual increase in rail journeys since the mid rebuilding of London Bridge station has had a the West Midlands franchise when our current 1990s has come from the changes to the greater impact on the resilience of those routes contracts end in October 2017 and for the South industry model (according to Oxera and neighbouring routes than expected in the Eastern franchise when our current one expires 2014 report). planning and forecasting stage for the in 2018. Shareholder information new franchise. As well as the potential for competitively awarded franchises to increase returns to the More than 3,000 train services a day run on the Are you committed to the taxpayer, the key findings of the NAO’s reform of railway line linking London and the Sussex coast voluntary Living Wage? the rail franchising programme review were that and as demand has grown strongly on this route We are pleased to have introduced the voluntary the DfT has improved the transparency, performance has declined. The number of ‘Living Wage’ across the Group, ensuring all consistency and clarity of information provided to passengers on the Thameslink route has grown employees, regardless of age, earn at least £8.25 bidders and the public; and strengthened the by 32% over the past five years, and by 40% on per hour, exceeding the government’s ‘National assurance and governance of franchising. To Southern routes. So more, longer, trains have Living Wage’ requirements. However, voluntary continue to improve the programme the DfT has been added to the timetable but the ‘Living Wage’ recommended-increases in future started to apply lessons learned from completed infrastructure upgrades have proved to be years could add to wage inflation, so we will competitions and feedback from bidders. There is insufficient to cope with the growth in passenger always continue to review this. now also greater emphasis on passengers’ numbers. This has all led to congestion and a experience, with bidders demonstrating how they noticeable decrease in performance of the train will deliver punctual reliable services and limit service. When complete in 2018, the Thameslink crowding while improving levels of customer Programme and GTR’s introduction of three new service on stations and onboard trains. fleets of trains totalling 1,398 carriages will bring vitally needed extra capacity to the region but in * £1.2bn total net payments to the DfT from train the meantime it has added an additional strain operating companies in 2014-15. with fewer routes into and out of London ** £8.5bn total train operating company revenue in Bridge station. England and Wales, in 2013-14. Despite around 60% of GTR trains being driver What opportunities do only operated services, the unions have entered you see overseas? into industrial action, disrupting services from spring 2016. This stance is regrettable and has Our established approach to development has significantly impacted on the service that the been to seek opportunities that deliver value to company is able to provide for passengers. Trains our shareholders. We do not make strategic where drivers open and close doors are not new, investments which increase market share

The Go-Ahead Group plc I www.go-ahead.com 15 Our business model

Our business model is robust and provides long term earnings resilience across the economic cycle. In addition to delivering sustainable returns for our shareholders we create value for our customers, our people and the communities we serve.

We generate revenue and profit 6 in two main ways 2

Through our three operating divisions: To build a sustainable business for the long term Regional London bus Rail bus

5 3

Creating value for: Enabled by: Our key relationships Communities Customers Our people 4 Our key inputs

Investors Strategic Government Supported by: partners & suppliers Our strategic priorities

Society Customers Our people Finance Our robust governance framework Our approach to risk

16 The Go-Ahead Group plc I Annual Report and Accounts 2016 1 We generate revenue and profit in two main ways: fare revenue raised and therefore revenue risk. This includes the UK 1) The provision of transport services to fare-paying passengers, whose London bus market and the GTR rail franchise. revenue covers the cost of service and a profit margin. Most bus • Net cost contracts where our revenue is a combination of income from operations in the UK outside London operate on this commercial basis. fares and payments from transport authorities. Most UK rail franchises 2) The provision of passenger transport services on behalf of public are run on this basis. sector transport authorities. We tender for, and run, contracts in two main Where revenue is partly or wholly derived from transport authorities the sub-categories: operator carries cost risk. Good cost controls are vital in areas such as staff utilisation, fuel efficiency and negotiating and managing contractual • Gross cost contracts where our entire revenue comprises payments relationships. Part of the Group’s core skill set is managing all of these report Strategic made by the transport authority to us with the authority retaining all areas without compromising safety or quality.

2 Through our three operating divisions: Regional London Rail bus bus Read about our divisions on page 18 and 19

3 Enabled by: Governance Our key relationships Our key inputs Passengers Our people We strive to deliver effective local services that put passengers at the We directly employ almost all the people involved in providing our services. heart of everything we do and where we stay one step ahead of changes Our buses and trains in our customers’ worlds. All of our trains are leased and we own all of our regional bus fleet. In our Our people London bus business, around half of our fleet is leased and half is owned. High levels of colleague engagement, job satisfaction and a safe, supportive

Infrastructure Financial statements working environment contribute directly to the success of Go-Ahead. We pay for the use of public sector infrastructure such as railway track Communities access or use of local authority bus stations. We own the majority of our Our businesses are part of the local communities in which they operate. bus depots. Rail depots are rented from Network Rail or similar providers. Our aim is to provide the social and economic benefits of affordable, Fuel accessible travel in the towns and cities we serve. Our vehicles are mainly powered by a combination of diesel, electricity Government and gas. Policy and regulatory changes affect our bus and rail businesses. Working

closely with both central and local government we bring the benefits of Read about our fuel hedging policy on page 53 Shareholder information private sector delivery and lower public spending. Finance Strategic partners and suppliers We are financed through a combination of investment from our We work collaboratively with strategic partners including the DfT, TfL, shareholders, bank and other debt and also through profits generated by local authorities, Network Rail and rail rolling stock companies. our operations. After payments to transport authorities and infrastructure Professional relationships with core suppliers help to ensure and support providers, our largest costs are those of employing our people, funding efficient delivery of value for money services. our vehicle fleets and fuel. Shareholders As a publicly listed company we provide open and transparent See the breakdown of our bus and rail cost bases on pages 52 and 56 information, which enables informed investment decisions to be made. Feedback from our shareholders forms part of strategic Board discussions.

4 Supported by: Our strategic priorities Our robust governance framework Our approach to risk

Read about our strategic priorities Read our corporate governance report Read about our approach to risk on page 23 on page 62 on page 40

5 Creating value for: transport authority customers and strive to be a reliable partner to A broad range of stakeholders our industry colleagues. Through our robust business model, we are committed to delivering sustainable shareholder value. We also create At Go-Ahead, we believe it is important to deliver shared value. Our bus benefits for the UK economy through the employment of over 27,500 and rail operations create value for our people, the communities we people, the taxes we pay, payments to our suppliers and the contribution serve, and our passengers. We deliver high levels of services to our our rail franchises make to the government.

6 To build a sustainable business for the long term We reinvest profits into our services to maintain our position as a leading provider of passenger transport.

The Go-Ahead Group plc I www.go-ahead.com 17 Our core business units

We create shared value for our stakeholders through our three core operating divisions: regional bus, London bus, and rail.

Regional bus London bus We operate commercial bus businesses, We operate tendered contracts for predominantly in the south of England Transport for London (TfL)

Outside London, we have operations in Brighton, Oxford, Plymouth, In London, we operate around 190 routes from 17 depots in the East Anglia, on the south coast and in north east England. We own capital. Around 85% of these depots are freehold. We own 100% of 100% of these businesses. this business. Key market features Key market features • Outside London • In London • Services operated on a largely commercial basis • Services operated for TfL which sets routes and service frequency • Accountable to the traffic commissioner and other industry bodies • Fares set by the Mayor of London • Work in partnership with local authorities to meet the needs of our • Private operators bid for individual route contracts communities • Revenue paid to operators by TfL on a revenue per mile basis • Comprises local markets with unique features • Five to seven year contracts, dependent on performance • Mainly private operators, some local authority owned operations • Gross cost contracts require tight control of cost base • Operators largely make their own decisions, such as setting bus fares, routes and service frequencies Growth opportunities Go-Ahead is the largest bus operator in London with around 24% • Some tendered services are run on behalf of councils, such as market share. Growth opportunities exist through additional contract school contracts wins, by moving into new areas through acquisition and if the scope of • Operators have a relatively flexible cost base which can be adapted the network increases as London’s population grows. to mitigate external factors Divisional revenue Growth opportunities 95%: Running bus services in London for TfL Go-Ahead operates around 7% of the regional bus market in the UK. Operating under a regulated system, TfL issues tenders for bus routes It is a mature market with scope for growth through acquisition, in London and private operators enter a competitive bidding process network expansion and changing behaviours resulting in increased bus for individual route contracts. Contracts are usually five years in use. The Bus Services Bill, which is currently passing through Parliament, duration with a possible two year performance-based extension. will give new enabling powers for franchising and the criteria which an Our revenue comes directly from TfL and is paid on a revenue authority needs to meet, though the Bill also enhances the partnership per mile basis. model with local authorities that Go-Ahead already supports. 5%: Other revenue including Quality Incentive Contract bonuses Divisional revenue Other sources of revenue include providing rail replacement services, 70%: Fare paying passengers advertising on buses and operating other third party contracts. By offering high quality services and value for money fares we are able to grow passenger numbers. Performance targets are set by TfL through Quality Incentive Contracts (QIC) to encourage the provision of punctual services. Operators 20%: Reimbursement for concessionary travel receive bonus payments when targets are met and are penalised for Government policy entitles anyone of pensionable age to free travel poor performance. on local bus services in England. Bus operators are reimbursed a percentage of the full fare for revenue forgone. This is paid by local Singapore bus authorities from a fund allocated by central government, based on a Singapore bus operates under the Bus Contracting Model, similar principle of the operator being ‘no better and no worse off’. to the London bus system. The Singapore Land Transport Authority Our typical reimbursement rates are around 50%. tenders out routes and collects fares. Operators are paid a sum 10%: Tendered contracts to run the routes, plus incentive bonuses for meeting or exceeding Services which are not commercially viable, such as rural routes and service standards. school buses, are tendered by local authorities. We also operate commercial contracts for universities and other third parties.

More information on page 51 More information on page 51

18 The Go-Ahead Group plc I Annual Report and Accounts 2016 Total Group revenue £3,361.3m Total Group adjusted operating profit £157.4m

Regional bus: £375.7m Regional bus: £53.3m London bus: £487.6m London bus: £47.1m Rail: £2,498.0m Rail: £57.0m Strategic report Strategic Rail United Kingdom We operate rail franchises for the Our operations are primarily based Department for Transport (DfT) in the south east of the UK

Go-Ahead currently operates three UK rail franchises (GTR, Southeastern and London Midland) through Govia, a 65% owned Newcastle joint venture with Keolis. Governance Key market features • Regulated by the Office of Rail Regulation (ORR) and other industry bodies • Peak fares, routes and service frequencies set by the government Liverpool • Existing franchises typically had initial contract terms of around eight years

• The infrastructure is largely owned and managed by Network Rail King’s Lynn Financial statements Birmingham Norwich • Trains are leased from rolling stock operators • Operators have a relatively fixed cost base, reducing flexibility to Colchester adapt to changes in the wider economy Oxford London Growth opportunities Govia operates around 27% of the UK rail market. There are significant Brighton growth opportunities in this market in the coming years, with several Poole franchises due to be awarded. New franchises typically have revenue Plymouth Shareholder information opportunity/risk, clear contingent capital requirements but low overall capital intensity. Divisional revenue 95%: Passenger revenue, franchise payments and subsidies Regional bus Operating under a regulated system, the DfT issues tenders for rail London bus franchises and private operators enter a competitive bidding process Rail networks for the right to operate them. Typically, operators submit detailed franchise bids that specify the level of premium the operator will pay to the DfT or the level of subsidy or franchise payment it will require from the DfT for operating the franchise, dependent on a range of assumptions, such as passenger revenue and cost base. The model is designed to maximise the value to the taxpayer by incentivising train companies to operate efficiently and encourage passenger growth. New overseas business 5%: Other revenue We believe there is significant opportunity globally for the services we A small proportion of revenue is generated through other activities provide, and we actively monitor a range of markets for opportunities. on the rail franchise network such as car parking, station retailing, In 2016 Go-Ahead won business in two overseas markets: Singapore advertising at stations and on trains and third party engineering work. and Germany. From September 2016 Go-Ahead will operate 25 bus routes in the Loyang district of Singapore. The Loyang contract is awarded for five years with the option of a two-year extension based on good performance. Singapore’s bus contracts system is largely modelled on London’s. Go-Ahead is also entering the German rail market, having been awarded two contracts of the Baden-Württemberg rail network. More information on page 55 The contracts begin in June 2019 and run until 2032.

The Go-Ahead Group plc I www.go-ahead.com 19 Our markets

We believe that public transport is best provided locally. Each local transport market is unique and each requires a tailored approach to help it deliver local objectives.

Market review passengers through increased innovation, service quality, We firmly believe in the fundamental strengths of UK public flexibility and efficiency. Commuter rail satisfaction in the south transport. All major political parties recognise and support the east has fallen recently as service has been impacted by importance of public transport for the UK’s present and future congestion and the infrastructure upgrade programmes being needs. Public transport brings benefits to individuals, implemented to reduce congestion. However, it is expected communities and the nation as a whole. Economically, it that satisfaction levels will increase dramatically when new connects workers to jobs and enables trade. Socially, it provides trains and infrastructure upgrades are completed in 2018. access to employment, education, and health care, and unites friends and family. For many, especially older people, people Our core markets with disabilities and children, public transport is often the only Our current bus and rail businesses operate in the UK, available way to make a journey. predominantly in London and the south east of England. Passenger demand for public transport services sees In the UK, the population continues to increase and car considerable variation across local markets reflecting ownership is rising, creating greater traffic congestion. Public differences in socio-demographic factors, the relative transport helps to reduce levels of traffic on the road, improve attractiveness of alternative modes of transport, as well as carbon emissions and reduce travel times. See page 29 for our wider transport policy and government expenditure. Our case study on customer journey experience. operations are located in high density commuter markets, It is important for us to listen to our customers at a local level where there is strong demand for public transport. and understand how their travel behaviours are changing and The London bus and UK rail markets are regulated by what is important to them. Understanding our customers and Transport for London and the Office of Rail Regulation communities enables us to innovate and evolve to continue respectively. Both markets operate under an established and meeting their changing demands. successful model. Local bus services outside of London have While we make use of market and wider economic data to been de-regulated and privatised since 1986. help us understand trends, we do not rely solely on this. We Go-Ahead is the largest operator in London with a market believe the best way to understand our customers’ behaviour share of over 24%. Operating under a regulated system, TfL is to ask our customers themselves for their views, as well as issues tenders for each bus route and private operators enter analysing travelling and purchasing behaviour through our a competitive bidding process for the right to operate them. various ticketing channels. Go-Ahead’s companies undertake Having a good network of bus depots is vital. Go-Ahead has passenger research to ensure customers’ needs are recently expanded its strategically located London depots to understood and are met. In general, levels of passenger 17, with around 85% of our capacity owned as freehold. satisfaction with bus services across the country are high and the commercial aspects of the market provide benefits to

Low emission buses Our strengths as an operator: • Understanding and meeting the needs of the people in Euro 6: 16% our local markets, delivering good quality services and Euro 5: 46% value for money Euro 4: 8% • Developing strong local brands Other: 30% • Delivering safe and efficient vehicle operations • High customer service standards, for both our passengers and our transport authority customers • Adopting a partnership approach in developing and Euro 6,5 and 4 are considered to be the lowest emission operating services which create long term value for all vehicles in the market. The average age of our bus fleet is parties involved 7.8 years. In the past year we have invested £71.8m in • Operating on large and complex transport networks 316 new buses. • Employing experienced management who are committed to supporting and developing our people

20 The Go-Ahead Group plc I Annual Report and Accounts 2016 The economy and population growth During the economic downturn in 2008/09 GDP fell by New markets around 6% and did not return to its pre-downturn levels until Go-Ahead’s longstanding approach to development has 2013. Unlike many sectors that experience volatility with been to seek opportunities that deliver value to our economic changes, the bus and rail markets remained relatively shareholders. We look for markets that fit with our stable through this period. Go-Ahead in particular, showed strategy and risk appetite and to which we can bring resilience at this time with consistent growth in passenger knowledge, experience and expertise. In the first half of volumes between 2008 and 2013, demonstrating the strength the year we were pleased to win business in two of our business model and strategy. overseas markets, Germany and Singapore.

Demand for bus travel in the capital remains strong and, In Singapore, Go-Ahead was awarded a five-year contract report Strategic despite a recent dip in passenger journeys as a result of road to operate bus services beginning September 2016. improvements and congestion, the market is regarded as being Singapore’s bus contracts system is modelled largely on relatively resilient. Population growth is a key driver for growth London’s and, as London’s largest bus operator, in public transport and the highest rates of population growth Go-Ahead has the right experience and expertise to have been seen in London. Across the regional bus market it is deliver high quality services in Singapore. important to note that there are considerable local and We also look forward to entering the German rail regional variations. Go-Ahead’s strategy is to focus our market, having been awarded two contracts to operate operations in dense urban markets which can support a rail services in Baden-Württemberg from June 2019 until Governance comprehensive network of bus routes, offering good value 2032. In Germany almost 90 million train-km per year is Governance and ease of use for both commuter and leisure travel. Bus due to be tendered each year between 2016 and 2020, can often be the cheapest way to travel, offering a low-cost almost half of this in Bavaria and Baden-Württemberg. alternative to other modes in a more uncertain economic environment. These contract wins show that Go-Ahead is a growing and forward-looking organisation which is well positioned Our rail strategy is to operate intensive urban commuter to capture new, value adding opportunities. franchises centred around London. The rail industry is not a Characteristics of the markets we are exploring: Financial statements single homogeneous entity as each franchise has distinct Financial statements characteristics. Significant variables include the type of franchise, • Cultural similarities to UK the age and length of the franchise and the revenue bid assumptions and subsidy/premium profiles. Go-Ahead benefits • Strong economic credentials from rail profits that are relatively less sensitive to passenger • High demand for public transport volume changes: the GTR franchise is a gross cost contract that • Stable political outlook is not exposed to revenue risk; while Southeastern and London • Growing population Midland have been operating in profit share. Shareholder information Shareholder information New technology and social change New technology and social changes are shaping the economics At Go-Ahead we recognise the need to put accessibility and of our industry. As a result the transport market is changing fast More information quickly and there are great opportunities ahead, as well as consumer choice at the heart of our business. We strive to on page 29 competitive pressures. This includes the likely shrinkage of the take advantage of technological advances and improve the traditional retail car as the need to own a car diminishes, services we provide. For a number of years we have led the especially in cities and the suburbs, and the use of automated industry in our use of smart ticketing, with the largest transport cars and car-sharing services increase. smartcard scheme outside of London. Over the last few years we have developed mobile apps with features such as realtime information to give customers access to up-to-the minute Bus payment method (%) information on their mobile devices. We strive to enable people to use their time travelling productively by creating Cash: 69% comfortable environments and providing innovations such as Smartcards: 23% on board Wifi and mobile phone charging points. Integrated M-tickets: 8% transport solutions will be an ever more important part of the transport network. We are exploring new ways to build end to end journeys, and have introduced car share hire schemes in Brighton and the north east that can be accessed by Go-Ahead’s ‘the key’ smartcard.

While all London bus journeys are paid with smartcard or contactless our regional bus journeys remain primarily paid for with cash.

The Go-Ahead Group plc I www.go-ahead.com 21 Our markets continued

Regional bus market share (%) Political and regulatory developments The Bus Services Bill, which was published during the course of 7% the year and is currently passing through Parliament, introduces enabling powers for bus franchising and outlined the process Stagecoach: 24% by which powers granted to combined authorities can be FirstGroup: 18% exercised. The Bill also enhances the partnership model with Arriva: 15% local authorities that Go-Ahead already supports. Significant Go-Ahead: 7% benefits have been achieved through the strong alliances National Express: 6% Go-Ahead companies have forged with local authorities. Others: 30% Go-Ahead has been working with the DfT on the important More information supporting guidelines that will underpin how the Bill gets on page 5 implemented and will continue to help inform the debate. Measures brought forward in the Bus Services Bill must ensure that the franchise decision-making process is transparent and that any franchise proposals will deliver on customer service, value for money and affordability criteria. London bus market share (%) 24% Market challenges

Go-Ahead: 24% Comfort DelGro: 19% Arriva: 17% Stagecoach: 15% Regional bus: RATP: 12% • Infrastructure improvements in some of our operating areas that will deliver long Abellio: 8% term benefits are resulting in significant roadworks and disruption in the Tower Transit: 4% shorter term Others: 1% • The local economy in the north east has not recovered at the same rate as other areas in which we operate. With unemployment at higher levels than the UK average, passenger volumes have fallen in this area as a result of weaker economic conditions • The current lack of detail around the government’s plans regarding the Bus Rail market share (%) Services Bill and possible links to devolution, creates uncertainty in this market, 27% which in turn disincentivises investment by operators

Stagecoach: 28% Govia: 27% FirstGroup: 13% London bus: Arriva: 12% • TfL has acknowledged that passenger volume targets have not been met due to Abellio: 11% rising levels of traffic congestion caused by increased roadworks and infrastructure Others: 9% improvement schemes. TfL expects reliability of the bus network to return to best previous levels by next year

Rail: • The large scale infrastructure project, the Thameslink Programme, continues to impact on our ability to operate some of our services to our target levels. We are reliant on other parties, such as Network Rail, delivering their contractual obligations

22 The Go-Ahead Group plc I Annual Report and Accounts 2016 Our strategy and key performance indicators

As a Group we have four strategic areas that we focus on: society; customers; our people; and finance.

Our vision Our strategy

‘A world where every journey is taken care of’ describes our vision, Our Group strategy is to generate value for our investors, report Strategic and our aspirations, at the highest level. We believe that how by building a sustainable business that meets the needs of we behave will benefit all our stakeholders, and help us grow our customers and communities. This strategy is underpinned and build a business for the long term. by our strategic priorities.

Our strategic priorities Governance Governance

Society Customers Our people Finance To run our companies in To provide high quality, To be a leading employer To run our business with a safe, socially and locally focused passenger in the transport sector. strong financial discipline environmentally transport services. to deliver sustainable Our people are our most Financial statements responsible manner. shareholder value. Financial statements Meeting the needs of our valuable and important asset. We believe a sustainable public customers is vital to the Without them our buses and Our aim is to deliver transport network is essential success of the Group. trains cannot create value. It is shareholder value through to the future of any society Providing reliable, value for our teams across the Group a combination of earnings and as a leading provider of money passenger transport that keep the business moving growth, strong cash generation passenger transport services, encourages more passengers and are the face of Go-Ahead. and balance sheet management, sustainability is integral to the to use our services and leaves Investing in and developing our supplemented by value adding way we run our business. us well placed to tender for people enables them to fulfil growth opportunities. We Shareholder information Ensuring the safety of our contracts with our transport their potential and assists them have a steadfast commitment Shareholder information passengers and our people is authority customers. Our in carrying out their jobs to to operating with strong an absolute priority for us. We devolved structure ensures the best of their ability, thereby financial discipline and a are also committed to making strong localised expertise, improving the customer conservative view to risk. The a contribution to the focuses on the needs of the experience. Effective leadership strength of our balance sheet communities in which we local customer and gives us development and succession allows us to pursue operate and wider society. the ability to respond quickly planning are essential to opportunities, adding value to Reducing the environmental to changing conditions in local sustainable success for the the Group and making impact of our operations while markets. Good customer Group and a diverse attractive returns to providing a greener alternative service is at the heart of workforce further shareholders. to the private car contributes everything we do and we are enhances this. to the government’s committed to delivering high environmental targets. The levels of customer satisfaction economic contribution from across the board. Go-Ahead helps support economic recovery and longer term prosperity.

More information on page 24 More information on page 28 More information on page 32 More information on page 36

Measuring our performance Directors’ remuneration policy The key performance indicators (KPIs) presented in this report are the The directors’ remuneration policy is designed to reflect the Group’s measures we use in the business to assess the Group’s performance against performance, with elements of remuneration linked to our strategic our strategic objectives. These measures are currently under review to priorities, particularly health and safety, customer satisfaction, and operating ensure we are focusing on the right areas of performance. profit and cashflow. The 2020 targets use 2014 performance as a baseline for measurement.

Read more about our sustainability Read our full directors’ remuneration materiality review on page 25 report on page 84

The Go-Ahead Group plc I www.go-ahead.com 23 Society Focused on sustainability

24 The Go-Ahead Group plc I Annual Report and Accounts 2016 For Go-Ahead sustainability means operating our business in a way that ensures it is viable for the long term. Our shareholders expect us report Strategic to make good decisions to contribute to the long term sustainability of the organisation.

To continue to demonstrate to our Of the 30 or more issues reviewed during the reputation. In instances such as this we focus on stakeholders – both internal and external – that process these particular issues are ones working constructively with industry partners

we are a responsible, forward-looking identified as both key to the business and highly such as Network Rail to minimise the impact of Governance organisation, we have conducted a ‘materiality important to our stakeholders. any disruption on our passengers. It is here that review’ to ensure we meet our stakeholders’ focusing and prioritising strong engagement expectations now and in the future. Sustainable reputation with our stakeholders is key to maintaining good relationships and enabling effective In collaboration with colleagues and key Go-Ahead’s reputation is based on how we communication with colleagues, customers, external stakeholders such as the DfT, TfL, the conduct ourselves, and how we are viewed to local authorities, industry bodies and the media. financial community and passenger groups, we be responding to issues of concern to our Together with the DfT and Network Rail we have sought to find out the issues which are stakeholders and issues in the public interest. have agreed joint narratives to explain the Financial statements considered significant, relevant and material to Building the trust and understanding of multi-faceted nature of the rail industry, both the business and stakeholders. This robust stakeholders is very important. We engage positively promoting its often unreported materiality assessment has been based on actively with them to ensure they have an successes and actively engaging with gathering a range of internal and external appreciation of the issues affecting our business commentators and critics. perspectives to determine Go-Ahead’s most and have the opportunity to discuss them critical issues. The exercise, which included openly with us. The industrial relations issues at rail operating a benchmark mapping against peers and Despite fewer passengers travelling by train than company GTR over the summer of 2016 have competitors, has identified issues that impact diminished its reputation and put the Group in

bus in the UK on a daily basis, rail services have Shareholder information on the business and are also important to a higher public profile in the media – and the the public eye, increasing our reputational risk. stakeholders, and prioritises those that are scrutiny on London commuter services Our focus will be to continue to modernise the rated highly against both criteria. operated by the Group give significantly greater franchise while embedding the right culture and values throughout the company and working to In the coming year we will be developing new opportunities for reputational risk and increase employee engagement, repair non-financial key performance indicators for contribute to a more challenging operating relationships to ensure all our people are these issues and aligning them to our new vision environment. In a highly regulated marketplace customer focused and delivering a sustained and values. The new KPIs will be strategic, such as the rail franchises there are industry good service for passengers. measurable and impactful – challenging us to issues impacting on service delivery that are improve our performance and demonstrate our outside the direct control of our operating commitment to stakeholders. companies and this increases the risk to our

Materiality matrix • Corporate governance • Public policy • Customer satisfaction Issues that are key to our High • Safety and security (passengers, business and important to employees and contractors) stakeholders. • Impacts on local communities • Regulatory compliance • Accessibility / affordability • Greener travel / carbon emissions • Technology and innovation • Employee engagement Impact on the business • Waste • Water • Supply chain

Importance to stakeholders High

The Go-Ahead Group plc I www.go-ahead.com 25 Our strategy and key performance indicators continued Society To run our companies in a safe, socially and environmentally responsible manner.

SPADs per million miles RIDDOR accidents per 100 employees Bus accidents per million miles What does it mean? Across the rail industry train What does it mean? RIDDOR (reporting of What does it mean? We monitor the number of operating companies report signals passed at injuries, diseases and dangerous occurrences bus accidents which result in a notification to a danger (SPAD). A SPAD could be a precursor to regulations) is a statutory requirement for all claims handler for every million miles we operate, a catastrophic accident and every SPAD is treated companies and relates to any work place incident including cases where we are not at fault. as a serious incident. Many SPADs happen each that results in any absence from work for over Why is it important? It helps us to measure year and most have little or no potential to cause seven days or any legally reportable incident to against our commitment to provide a safe and harm and are the result of minor misjudgements the Health and Safety Executive. positive travel experience for our bus passengers of braking distance. All SPADs are given a risk Why is it important? It helps us to measure and minimise risk to the general public. Good ranking which considers the actual and possible against our commitment to provide a safe performance in this area can also reduce cost consequences of each incident. working environment for our employees. through lower insurance claim costs. Why is it important? It helps us to measure Risks Failing to provide a safe working Risks Our objective to run our companies in a against our commitment to provide a safe rail environment for our people goes against our safe manner would be impacted by poor passenger service. objective to be the employer of choice in the performance against this KPI. Risks associated with Risks Poor performance in this metric could sector. Poor performance could lead to issues this include reputational risk and higher insurance impact on operational performance, resulting in around employee relations, including satisfaction claim costs. a poor safety record and reputation. and productivity, and could also increase 2016 performance The number of bus accidents 2016 performance The number of SPADs per employer’s liability insurance claim costs. per million miles decreased by 2.35% to 37.3. million miles has decreased by nearly 10.4% to 2016 performance The number of RIDDOR Overall, we have achieved an improvement of 0.69. Overall, we have achieved an improvement accidents per 100 employees reduced by 11.43% 34.65% against our original 2007/08 baseline. of 44.35% against our original 2007/08 baseline. to 0.62. Overall, we have achieved an Bus accidents have reduced since 2011 as a result This result should be viewed in the context of improvement of 68.69% against our original of action we have taken, despite an increase in many years of improvement in this metric across 2007/08 baseline, exceeding our 2015 accidents where we are not at fault. We invest the industry. Performance is tracked against a very target of 60%. heavily in training, monitor driving behaviour and good baseline performance. We have tight We take our responsibility for the safety of our encourage our drivers to improve their standards controls around safety and high standards of people very seriously and ensure our employees of driving through a range of initiatives across the driver training which minimise the likelihood of have the necessary equipment and training to do division. We have improved end to end processes SPADs occurring. We also work closely with their jobs properly and safely. During the year, we in place from accident prevention to claims Network Rail to minimise the risk of SPADs and continued to invest in staff training and upgrades management. We investigate every accident actively encourage accurate and timely reporting to our facilities to ensure a safe working and encourage accurate and timely reporting of incidents. environment for our people. We investigate every of incidents. Due to the nature of these occurrences and high accident and encourage accurate and timely 2020 target To maintain low levels of bus sensitivity to data changes, relative performance reporting of incidents. accidents per million miles, delivering can fluctuate from one year to the next. 2020 target To maintain low levels of RIDDOR continuous improvement. 2020 target To maintain low levels of SPADs per accidents per 100 employees, delivering million miles, delivering continuous improvement. continuous improvement.

SPADs per million miles Riddor accidents per 100 employees Bus accidents per million miles

0.8 0.80 1.2 40 0.77 37.8 38.2 0.72 37.3 0.7 0.69 1.01 31.5 0.6 0.58 0.9 30 27.0 0.5 0.76 0.72 0.70 0.4 0.6 0.62 20 0.3 0.2 0.3 10 0.1 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16

26 The Go-Ahead Group plc I Annual Report and Accounts 2016 Carbon emissions per Greenhouse gas emissions

passenger journey report Strategic What does it mean? We monitor all of the We report on greenhouse gas (GHG) emissions in accordance with the GHG Protocol energy used within our operations and calculate Corporate Accounting and Reporting Standard and the UK government’s Environmental Reporting Guidance methodologies together with the emissions conversion factors from DEFRA/ our CO2 emissions resulting from this energy use DECC GHG conversion factors for Company Reporting 2015. In line with this guidance, we have by using the appropriate CO2 conversion factor. reported the emissions sources* that are required. These sources fall within businesses included in We divide our CO2 emissions by the number of our consolidated financial statements. passenger journeys made to establish CO2 per passenger journey and we use this metric to Emissions are expressed in terms of equivalent carbon dioxide (CO2e). Our relative performance measure our performance. metric is kilogrammes of CO2e emissions per passenger journey.

Why is it important? It helps us to measure Governance Overall, CO emissions in absolute terms have increased as a result of business acquisitions but Governance against our commitment to improve energy 2 CO emissions per passenger journey have decreased largely due to improved efficiency in the efficiency while contributing to government’s and 2 use of traction electricity. local authorities’ carbon reduction targets and providing a greener way for our passengers to * Emissions from air conditioning equipment in our premises and vehicles are not included in this analysis due travel. Good performance in this area also to the difficulty in obtaining this data.These emissions account for less than 0.5% of our total GHG emissions reduces cost through fuel efficiency. and are therefore not considered material. 2015/16 2014/15 Risks Our objective to run our companies in an CO2e tonnes CO2e tonnes Financial statements environmentally responsible manner would be (‘000) (‘000) Financial statements impacted by poor performance against this KPI. Scope 1 Poor performance could result in reputational risk Passenger journeys (m) 1,297.23 1,241.20 for the Group and higher costs. Gas (buses) kwhs (m) 6.3 6.9 1.3 2016 performance The year on year rate in this Gas (premises) kwhs (m) 51.0 9.4 54.5 10 metric has improved by 2.34% and we continue Bus diesel (10% bio-diesel blend) ltrs (m) 130.3 340.2 127.6 329.8 to make progress towards our 10% reduction Rail diesel ltrs (m) 18.6 55.1 18.4 53.5 target by 2018. Shareholder information Scope 2 Shareholder information 2018 target To reduce like for like carbon Traction electricity kwhs1 (m) 1,368.9 564.1 1,169.3 540.4 emissions per passenger journey by 10% on a Site electricity kwhs (m) 104.8 43.2 100.3 39.4 2014/15 baseline. This is a challenging target as we Electric buses kwhs (m) 0.07 0.03 n/a n/a have already made significant improvements in this area. Carbon emissions per passenger journey Scope 3 have reduced 16.11% on a like for like basis from Electricity – transmission and distribution our original 2007/08 baseline. losses within the grid 54.9 44.6

Sub‑total 1,066.93 1,019.0

Outside of scopes Biogenic content of bio-diesel2 7.9 11.0

Total 1,074.83 1,030.00

Carbon emissions per 1. Traction electricity consumption data relates to the period from 1 April 2015 to 31 March 2016. This passenger journey (kgs) provides the most accurate figure for consumption. 2. The biogenic content of bio-diesel is considered outside scope as there is no conversion factor for our baseline year. Emissions from this source are reported for 2015/16 but are excluded from the calculation of 1.0 our relative performance metric as comparative data is not available. We define our organisational reporting 0.97 boundary by applying the financial control approach with a materiality threshold set at 5%. 0.85 0.8 0.83 0.82 0.84 0.82 2015/16 2014/15

0.6 Kgs CO2 per passenger journey 0.82 0.84

0.4 Kgs CO2 per passenger journey only includes scopes 1-3 CO2.

0.2 For more information, historical data can be found online at www.go-ahead.com/sustainability 08 12 13 14 15 16

The Go-Ahead Group plc I www.go-ahead.com 27 Customers Focused on customer experience

28 The Go-Ahead Group plc I Annual Report and Accounts 2016 With the help of passengers and colleagues, we have created comprehensive maps of our customers’ bus and rail journeys from report Strategic the very start to the very end of their journey.

Walking in our customers’ shoes, we have dementia and responding appropriately, it is of elderly people – have used the Dementia identified where we can improve the experience increasingly important to offer a personal Friend training along with other accessibility

they have of our services. We have detailed service that suits the needs of the individual. training to positive effect. Practical ways to assist Governance action plans to deliver enhancements across: passengers with hidden disabilities, such as the We are investing in technology, and through our introduction of ‘helping hand cards’ at many of • planning and researching journey options industry groups, working with information our operating companies, enables us to provide technology companies to build a substantial • buying tickets a more personal service. The Samaritans work portfolio of innovative transport apps. Providing • boarding the bus or train with our train companies to promote mental information at people’s fingertips helps people health and wellbeing and also, as part of their • getting help from our staff or through make decisions about their journeys from start ‘safeguarding’ programme, to assist identifying information channels to finish. We know every minute counts for young people who may be vulnerable Financial statements many of our customers, and providing people • completing the onward journey and at risk. • contacting customer services, clearing delay with the best information is essential to repay or locating lost property building trust. All our trains are wholly accessible for users of wheelchairs, but there is still some way to go Our new vision helps the Group to create an Improving accessibility before most stations have step-free access as aspirational version of what the future will be An important element of public transport is many stations were built at a time when like for customers; the ideal customer providing an inclusive service. Whether step-free accessibility was not a consideration. experience where every journey is taken care However, many of the barriers to increasing

customers are using wheelchairs or mobility Shareholder information of. Our commercial bus companies work hard scooters, have difficulty walking, are pregnant or accessibility of our bus and train services are to attract and retain customers and we are travelling with young children, or have learning not physical ones, and can be overcome with proud that for another year we have achieved difficulties or mental health issues – all our bus increased employee awareness and training. leading national ratings of 89% customer and rail companies strive to make their services satisfaction in the national bus passenger survey. as accessible as possible to everyone. Features that many of our services outside London have, such as onboard Wifi, USB phone We invest approximately up to £70m per charging points, and new way-finding apps all annum in new buses and this year all vehicles 89% assist to increase satisfaction. As expectations acquired have audible announcements and Joint highest increase we need to be agile and find new ways electronic visual signage (AV) onboard, also we passenger satisfaction to take care of every aspect of journeys and have made a commitment that future purchases score of the large deliver even better experiences. will be fitted with AV. Our bus companies have transport groups signed up to the RNIB charter, using the ‘Stop We also appreciate that every customer is in the UK for Me, Speak to Me’ training material to help unique, so has different needs and expectations, drivers appreciate some of the experiences and increasing personalisation is key to people problems blind and partially sighted people face. feeling taken care of. Whether it is an ‘app’ remembering a passenger’s ‘home’ station, a We continue to deepen our people’s customer service system automatically understanding of the issues facing customer calculating a refund that is due, or a bus driver with dementia and – particularly in the coastal recognising the signs that a customer may have areas we serve which have higher percentages

The Go-Ahead Group plc I www.go-ahead.com 29 Our strategy and key performance indicators continued Customers To provide high quality, locally focused passenger transport services.

Like for like passenger volume growth Customer satisfaction Regional bus punctuality What does it mean? We measure the number of What does it mean? Customer satisfaction is What does it mean? The punctuality of our passenger journeys taken on our regional bus and measured by the independent passenger regional bus operations is measured as the rail services compared with the previous year. This watchdog Transport Focus. Surveys are percentage of buses which arrive at their stop is measured on a like for like basis, adjusting for conducted twice a year for our rail franchises and between one minute before and five minutes acquisitions, new franchises and the effect of annually for our regional bus operations. Our after their scheduled time. Therefore, the higher the 53rd week. primary customer in London bus is TfL. We the percentage the better. As we are contracted on the basis of mileage in measure satisfaction by performance against TfL Why is it important? Service punctuality is our London bus division, we do not measure performance targets, such as excess waiting time. important to our passengers and is key to helping passenger numbers. Why is it important? Providing high quality us grow passenger numbers. Why is it important? We track this metric closely service is a strategic priority for the Group and Risks Punctuality is a key driver of customer as performance against our rail franchise bid monitoring customer satisfaction is a key measure satisfaction. If our customers are not satisfied with assumptions and progress towards our bus of our performance. Identifying potential issues the service they receive they may switch to other operating profit targets are significantly impacted allows us to take action to improve our services. operators or other modes of transport. There is by passenger volumes. Risks If customers are not satisfied with the a direct correlation between journey times * Risks Decreasing volumes could be an indication service they receive, they may switch to other lengthening and fewer passengers travelling. of performance issues within our operations or operators or other modes of transport. The 2016 performance 86.2% of our regional bus changes in economic or market conditions, all of satisfaction figures receive media attention and services ran on time. This is in line with last year’s which could impact on the Group’s overall our reputation can be harmed if these are low. performance, lower than previous years due to performance. Our rail franchise contracts have satisfaction congestion and roadworks in some of our targets and our operating companies could face 2016 performance In regional bus, like for like operating areas preventing punctual penalties if the targets are not achieved. volumes remained steady with ongoing weakness service running. in the north east economy and redevelopment 2016 performance In bus, we achieved the joint 2020 target Achieve regional bus punctuality of roadworks around Oxford. This decline follows highest passenger satisfaction score of the large over 95% in line with industry targets. transport groups in the UK at 89%. many years of consistent growth, against a * The Impact of Congestion on Bus Passengers report backdrop of declining volumes in the wider UK Rail scores declined a percentage point to 75.3% (Greener Journeys, 2016). bus industry, outside London. This growth has as a result of significant disruption for both been supported by our geographical focus in Southeastern and GTR franchises, primarily due more economically resilient areas and our to the £6.5bn government funded Thameslink approach to marketing our high quality services. Programme upgrade and resulting lack of In rail, we continued to deliver consistent growth resilience in the network. London Midland, which throughout the challenging economic period from is not impacted by significant infrastructure work, 2008 and this has continued in the year, with like achieved 85.8%. The average score for train for like growth of 3.1%. operators in London and the south east is 80%. We have made improvements over a period of 2020 target To maintain our sector-leading bus time including sales channels, off-peak services passenger satisfaction scores and improve on and marketing. levels of customer satisfaction in the rail division, bringing them in line with the industry average for 2020 target To maintain growth at broadly similar the London and south east network. levels to those consistently delivered in recent years.

Like for like passenger Customer satisfaction (%) Regional bus punctuality (%) volume growth (%) Regional bus Rail Regional bus Rail

5 4.8 100 100 92 91.2 90 90 90 89 90.0 90.0 4 3.9 86.9 86.2 80 83 80 78 77 3.1 76 75 3 2.8 2.1 60 60 2 2.0 1.9

1 1.1 0.0 40 40 0 20 20 -1 (1.4) 12 13 14 15 16 12 13 14 15 16 12 13 14 15 16

30 The Go-Ahead Group plc I Annual Report and Accounts 2016 London bus punctuality Rail punctuality Key drivers of satisfaction

What does it mean? The punctuality of London What does it mean? The punctuality of our rail report Strategic bus operations is measured by excess waiting operations is measured on the basis of the DfT’s Research strongly demonstrates that what time. This is the time passengers have to wait for Public Performance Measure (PPM) on a moving bus and rail passengers want first and a bus above the average scheduled waiting time. annual average basis. PPM is the percentage of foremost is a punctual, reliable service that The lower the excess waiting time, the better trains that arrive at their final destination within offers value for money. A reliable network is the performance. five minutes of their scheduled arrival time. fundamental to both bus and train services running on time. Why is it important? Service punctuality is Why is it important? Service punctuality is important to the passengers we carry on behalf important to our passengers. It is the strongest Over the past year roadworks in places of TfL. We earn extra revenue through Quality indicator of passenger satisfaction with the service such as London and Oxford have caused Incentive Contract (QIC) bonus payments if we and is fundamental to building trust and advocacy congestion leading to an increase in journey Governance Governance exceed TfL punctuality targets, on a contract among customers. PPM performance forms part times and decrease in bus reliability which route basis. Contract extensions are based of our franchise agreements with the DfT. has impacted on the number of passengers on performance. Risks Punctuality is a key driver of customer travelling. A 2016 study* into congestion Risks Poor performance could result in lower satisfaction. Poor performance could result in describes the impact of slower speeds QIC bonus payments and contracts not customers stopping using our services and harm leading to higher costs, higher fares, being extended. to our reputation. Breach of franchise agreement increased journey times, punctuality and reliability decline and service decline; all 2016 performance Average excess waiting time terms could lead to financial penalties or Financial statements leading to fewer passengers. Go-Ahead’s Financial statements held at a similar level to last year at 1.22 minutes ultimately result in the loss of a franchise. bus companies work in partnership with in excess of the average scheduled wait time. The 2016 performance Overall PPM for our rail local authorities in their regions to ensure industry average excess wait is 1.15 minutes. companies was 82.8%. This is a significant decline that both operators and local authority of 4.6ppt against the prior year. This metric has Performance has been impacted by roadworks planners can mitigate as much as possible been impacted for the last few years by weak and congestion associated with public realm against the deterioration experienced network resilience in the Southeastern and GTR improvements, including the cycle super highway, through necessary roadworks. affecting our ability to run services in line networks which saw a decline of 3.6ppt and with targets. 9.7ppt respectively. Conversely, London Midland’s It has been accepted that after years of Shareholder information PPM saw an increase of 1ppt taking it to 88.5% underinvestment and increasing passenger Shareholder information 2020 target Achieve low average excess waiting and average for the year. We continue to work numbers the London and south east time of below one minute, in line with closely with Network Rail to improve network is not providing the reliable TfL’s targets. performance on the networks on which we network trains companies need to operate operate, but infrastructure will remain restricted a punctual service and this is having an during the Thameslink upgrade programme and it effect on overall customer satisfaction. The will not be until the end of 2018 that the full spring 2016 rail passenger survey included benefits of the investment will be realised. pilot survey where an ‘emotional tracker’ 2020 target Increase levels of punctuality in all was used to monitor commuter our franchises to meet 90% PPM in accordance experiences through a period of disruption with the ORR’s Network Rail and London and linked to London Bridge rebuild and the south east operators’ 2019 target. The industry is Thameslink Programme. The two factors currently reviewing how it measures performance strongly affected passengers’ sentiment were from 2018 to 2022. being on time and the ability to get a seat. The Thameslink Programme will create additional capacity and stabilise the network London bus punctuality (minutes) Rail punctuality (%) supporting a more reliable train service which will improve customer satisfaction.

* The impact of Congestions on Bus Passengers 1.5 100 (Greener Journeys, 2016). 90.3 88.1 86.9 86.7 1.2 1.21 1.22 80 82.8 1.05 0.95 0.9 0.88 60

0.6 40

0.3 20

12 13 14 15 16 12 13 14 15 16

The Go-Ahead Group plc I www.go-ahead.com 31 Our people Focused on our vision

32 The Go-Ahead Group plc I Annual Report and Accounts 2016 Our new behaviours and attitudes have been created in collaboration with colleagues and stakeholders. They capture in words the spirit of what we report Strategic stand for, guiding our decision making and our actions and are how we are going to achieve our vision.

A world where every journey is taken care of consistency of approach and language our people plans include several schemes to – is our new Group vision. It is future focused, throughout the business. Action plans and ensure colleagues have opportunities for full and

aspirational and puts customers at the heart of commitments are part of our ‘better together’ successful careers within the Group. We have a Governance our business. It sets out where we want to be. sessions with leaders and managers accountable strong talent programme where individuals with for overseeing delivery. potential are encouraged to work on projects Creating our vision has been a collaboration and take secondments in other areas of the between colleagues across the organisation and The new vision, beliefs and attitudes help us Group to deepen their understanding of external stakeholders including customers. We meet our shared goals and objectives in a way the industry. know it is important that this is not just an that we have mutually agreed is how we wish to exercise to refresh the words we use but that behave and be seen to behave. With these Go-Ahead bus division’s two year graduate they make a tangible difference to how our strong values in place, the organisation will scheme, launched in 2013, has now successfully Financial statements people feel about working at Group, how support the right behaviours and challenge seen 21 graduates go through the programme customers experience the service we offer and those that go against them. Like other successful and six take management roles. The scheme a point of differentiation from our peers. organisations we will use our values and built on the Group’s well established behaviours to govern decision making. Our engineering scheme and broadened the scope The vision is a continual reminder that we are leaders and senior managers play a crucial role to include high calibre individuals enthusiastic an organisation that provides a valuable public in assisting others to do this. about transport, who were commercially aware transport service for people rather than just with strong leadership potential. Participants being operational logistics experts. The act of Delivering improved efficiencies and greater focus on the operational aspects of company taking care of people’s journeys resonates with agility will help us to be one step ahead of the Shareholder information management and have the opportunity to work our employees and is a common purpose for competition and continue to invest in the future. across all areas of the business including driving, everyone in the Group. We know that by working together we will be contract and project management, marketing able to create a truly customer-focused Embedding the new vision, behaviours and and stakeholder relations. A coaching approach collaborative workplace and through that attitudes across the organisation is underway underpins the scheme and MDs and operations deliver growth. Passengers will benefit from – our policies, procedures, KPIs and contracts directors act as mentors for the graduates. better services; customers and our supply chain are all being re-drafted to align the organisation will benefit from increased responsiveness and For the past few years our rail division has with our vision so that we are agile and improved value for money; our people will taken part in the industry’s ‘track and train’ responsive to meeting our customer needs. benefit through greater opportunities across scheme providing all-round experience for We have launched a programme entitled ‘going the Group; and our shareholders will benefit in graduates to find graduate roles and in the past forward together’ to deliver the key changes our success. year we have introduced our own Govia we need to put in place in all our operating graduate scheme with five graduates in 2015/16. companies to continue to grow, deliver better As part of our effort to increase gender value for money and provide a good service for Next generation diversity across our business, two women are customers. Facilitated workshop sessions have Succession planning is an important part of part of the cohort. been held at all operating companies to ensure running a responsible sustainable business and

Our new vision, beliefs and attitudes are:

A world where every We believe in We are journey is taken care of Trusting people Accountable Being can-do people Down-to-earth Building relationships Collaborative Being one step ahead Agile

The Go-Ahead Group plc I www.go-ahead.com 33 Our strategy and key performance indicators continued Our people To be a leading employer in the transport sector.

Employee engagement Absenteeism Employee turnover What does it mean? Since 2012 we have What does it mean? We measure employee What does it mean? Employee turnover is measured how engaged our people are through absence by the percentage of scheduled hours measured by the percentage of employees who annual independent employee surveys, conducted not worked due to unplanned absence leave the business in year. across our businesses. from work. Why is it important? High levels of employee Why is it important? Go-Ahead strives to be a Why is it important? High levels of absenteeism turnover could be reflective of low levels of staff good, respected employer and we appreciate the could be reflective of low levels of staff satisfaction and engagement. By monitoring levels experience and opinions of our people and satisfaction and engagement. By monitoring levels of turnover we are able to identify areas of the insight gained from their feedback. Whenever of absence we are able to identify areas of the business with potential employee relations issues. possible we make changes as a result of feedback business with potential employee relations or staff This also helps to identify issues such as staff received to build trust and foster an environment shortage issues. Monitoring also helps us with our shortage and assists us in resource planning where employee voice is valued. resource planning and allocation. and allocation. In addition to making Go-Ahead an attractive Risks Staff shortages could impact on our ability Risks Employee shortages could impact our place to work, high levels of employee to deliver our services at the frequency, level of ability to deliver our services at the frequency, engagement will contribute to the success punctuality and standard we aim to achieve. It level of punctuality and standard we aim to of the Group. potentially puts additional pressure on colleagues achieve. Some roles, such as train drivers, take Risks Low levels of employee engagement could in the workplace and impacts on employee more than a year to train and we have a result in reduced productivity and higher levels of morale, engagement and stress levels. There is a disproportionate number of employees in those absence or staff turnover, all of which would significant cost to the business of absenteeism; the roles likely to be nearing the end of their career. impact on resource planning across the business. national estimated average cost of an absent 2016 performance The overall rate of employee employee is £554 per year (CIPD 2015 survey) 2016 performance In the year our overall turnover was 11.4% for the Group, with 14.8% in engagement score for the Group was 53%. Our 2016 performance In the year, the overall rate of our bus division and 7.9% in rail. bus division recorded levels of employee Group absence was 3.9% of working hours lost Levels of turnover are regularly monitored by engagement of 47%, and our rail division averaged to sickness, with 3.5% in our bus division and local management teams who we believe are scores of 59%. 4.3% in rail. This is higher than the national sector best placed to respond to changing levels and average (3.5% CIPD 2015 survey). As the largest employer in the Group, Go-Ahead address local issues as they arise is important to London’s relatively low score of 46% brought Our local management teams are focused on consider the economic climate in relation to this down the bus division average significantly. GTR’s establishing workplaces with a positive working KPI as the wider job market can impact turnover score of 40% has also negatively impacted the rail atmosphere and consider wellbeing when making levels. Our rail division is recruiting and training an division results significantly. Improving engagement operational business decisions. Line manager unprecedented number of new drivers to at both these operating companies will be a training is aimed at assisting our people’s capability operate increased numbers of train services, and particular focus for the management teams. to manage absence through identifying and to fill vacancies left by retiring colleagues. managing stress in their teams and adhering to 2020 target All our bus and rail companies set 2020 target Maintain consistently low levels attendance procedures. their own challenging targets to increase levels of of employee turnover. employee engagement. Overall, our aim is to 2020 target Achieve low levels of absenteeism, improve our levels of engagement each year, below the national average. remaining above the average for large businesses.

Employee engagement index (%) Absenteeism (% of working hours) Employee turnover (%)

Bus Rail 80 4 12 3.9 3.9 3.9 3.9 11.4 3.6 70 10.4 10.5 62 63 9.4 9.4 60 60 59 3 8 50 45 46 47 40 40 2 30 4 20 1 10 13 14 15 16 12 13 14 15 16 12 13 14 15 16 Due to the timing of surveys 2015’s rail figures show data from 2014/15 for Southeastern and 2012/13 for Southern and London Midland.

34 The Go-Ahead Group plc I Annual Report and Accounts 2016 Focus on our people Strategic report Strategic Our aim is to be the employer of choice in the sector. The safety and wellbeing of our people is our priority and we place great emphasis on strong health and safety standards being maintained across the Group. We have refreshed our organisation’s vision and values to better encourage an environment where our people develop and have the opportunity for fulfilling careers with us. We seek to provide opportunities for personal in roles such as bus and train drivers and Employee relations and professional development and to recognise engineering operational roles. We work to It has been established that retaining engaged Governance and reward excellence. We are committed to ensure that there is no bias towards either and motivated employees is important to the Governance protecting the rights of our people and believe gender and that all appointments and internal success of the business. We seek to engage in equal opportunities at all levels of the promotions are made on the basis of merit. effectively with teams and individuals at a local business. We use a range of means to ensure The Group believes in equal opportunities level, while maintaining a Group approach with that the voice of employees is heard across the regardless of gender, age, religion or belief, consistent values and behaviours. We appreciate Group including: employee surveys, informal sexual orientation, race and, where practicable, the experience and opinions of our people and feedback sessions and discussions, internal social disability. We give full and fair consideration to conduct annual employee engagement surveys across the Group. The majority of our

media, phone-ins, newsletters and more. Financial statements job applications from people with disabilities, Financial statements During the year, we continued the development considering their particular aptitudes and workforce is represented by trade unions and of our people and succession plans across the abilities. In respect of existing employees who we strive to foster good relationships with organisation from the boardroom to customer- may become disabled, the Group’s policy is to union representatives, acknowledging the facing colleagues. Our central HR function runs provide continuing employment and impact that poor employee relations has on our ‘talent’, ‘rising star’ and mentoring programmes appropriate training, career development and success. It is clear that the response of unions to for individuals identified as having potential for promotion of disabled people employed by us. modernisation changes being introduced at rail company GTR has created a difficult climate for promotion. It also develops training courses and In the past year we have embarked on a some particular roles and improving relations in Shareholder information provides access to a suite of learning and training programme, that will ultimately include Shareholder information this matter is one of the main focuses of the development resources for managers and all operating companies, helping managers of management team. teams across all our operating companies. people to be aware of issues such as We believe it is important employees can unconscious bias to ensure all people are Our local approach benefit from the Group’s success alongside treated fairly and equitably. Go-Ahead has always operated through a devolved management structure, with local shareholders. In the past year we have Human rights teams entrusted and empowered to run their introduced a Sharesave scheme, the second We are committed to protecting the rights of businesses effectively. We believe our operating scheme in the past four years, aimed at our people, customers, suppliers and other company management teams are best placed encouraging our people to increase their stakeholders. This commitment is reflected in to respond to the needs of local customers and vested interest in the Group’s success. our Group policies and procedures. The communities. This approach allows flexibility and Diversity and equal opportunities Modern Slavery Act came into effect in 2015 fast action which we believe gives us Go-Ahead recognises the value of diversity in and Go-Ahead has made steps to promote and competitive advantage in the markets we serve. all areas and at all levels of the business. Over improve our commitment to eliminating abuse This local focus is complemented by skills, the past two years we have established a and exploitation in the workplace. We have expertise and support at Group level in areas Group diversity forum, comprising individuals identified at risk functions within our business such as marketing, IT shared services and from across the Group, with a particular focus and supply chain and have required our procurement and we have regular ‘better on increasing gender diversity. Traditionally our suppliers to abide by our anti-slavery and together’ forums to share experience and industry has a large percentage of men working trafficking policy – or their own equivalent. expertise around the Group.

Board gender diversity Senior management gender diversity Overall Group gender diversity

Male: 5 83% Male: 53 83% Male: 23,617 86% Female: 1 17% Female: 11 17% Female: 3,908 14%

The Go-Ahead Group plc I www.go-ahead.com 35 Finance Focused on accountability

36 The Go-Ahead Group plc I Annual Report and Accounts 2016 Go-Ahead is committed to accountability in its finances, maintaining a strong and effective financial control environment. report Strategic

We have a disciplined financial framework companies to one enterprise platform. Our Over the last few years we have invested in operating Group wide. A key part of our central procurement department achieves cost establishing a central services IT helpdesk team

business model is to focus on customer service savings through negotiations on behalf of our offering our operating companies 24 hour Governance to improve customer retention and satisfaction operating companies and our central marketing technical support. This shared service centre and to invest in capability, processes and function adds value by negotiating advertising allows employees to log all faults ranging from a performance measures to reduce costs by space nationally rather than at individual problem with equipment such as station ticket making our operations reliable effective company level. vending machines through to getting assistance and efficient. over the phone or via online chat with a Our central procurement division has computer software problem or query. We continue to be one of the few FTSE 250 successfully delivered savings in the region of companies with the Fair Tax Mark – something £4m across a range of contracts. For example Financial statements that we were the first in the FTSE 350 to be the team has negotiated a telecommunications accredited with at the scheme’s launch in 2014. data contract leveraging the scale of our UK The Board continues to work towards being wide operations and the growing desirability assessed as ‘low risk’ by HMRC and ensure that of having Wifi service onboard our buses and we adhere to our policy of not undertaking tax trains and at stations. planning or making use of tax havens. Our suppliers play a strong role in helping us Our devolved approach enables us to build deliver our strategy and we aim to get the most management accountability at operating from them. We aim to choose companies who Shareholder information company level. It means that decisions can act ethically and responsibly and by working in be taken locally about where to re-invest to partnership with our suppliers we have deliver the maximum benefit for customers. A continued to reduce our carbon, water and significant portion of our profits are reinvested waste emissions. We have also signed up to the in the business to increase opportunities for prompt payment code and follow the principles growth as well as drive further efficiency. of the government’s better payment Organisational efficiency programmes include practice code. upgrading IT systems and moving all Group

In the top 10 ‘UK’s most trustworthy companies 2016’ – Forbes List. Companies that, “Consistently demonstrated transparent accounting practices and solid corporate governance” First in FTSE 350 to achieve Fair Tax Mark

The Go-Ahead Group plc I www.go-ahead.com 37 Our strategy and key performance indicators continued Finance To run our business with strong financial discipline to deliver sustainable shareholder value.

Like for like revenue growth Adjusted operating profit Adjusted NET DEBT/EBITDA What does it mean? For our rail operations, we What does it mean? Adjusted operating profit What does it mean? This ratio is used to indicate measure revenue generated through the excludes the incremental impact of IAS 19 the Group’s ability to pay down its debt from provision of passenger transport services. In our (revised) and also amortisation, goodwill earnings. Adjusted net debt, which is total net bus division, non-passenger revenue is less impairment and exceptional operating costs debt plus restricted cash in our rail division, is material, so we measure total revenue instead. to provide more comparable year on year measured against earnings before interest, tax, Why is it important? Growing revenue through a information. depreciation and amortisation (EBITDA). combination of growth in passenger numbers and Why is it important? Adjusted operating profit Why is it important? We have a bank covenant modest fare increases drives operating helps us measure the underlying performance of limit of 3.5x and are required to remain below profit growth. our operating companies. Profit growth enables this level. This ratio also helps us measure against Risks Inadequate levels of revenue growth can us to reinvest in the business and deliver our commitment to preserve a strong capital impact on profitability, reducing our ability to shareholder value. structure and maintain our investment grade invest in the business and make returns to Risks Inadequate levels of profitability can reduce credit ratings. shareholders. our ability to invest in the business and make Risks Exceeding the bank covenant limit of 2016 performance In regional bus, like for like returns to shareholders. 3.5x cover. revenue growth was 2.4%, down on 2015 2016 performance Total adjusted Group 2016 performance In line with management’s performance (2.6%). London bus like for like operating profit was £157.4m, up 16.9%. Adjusted expectations, adjusted net debt to EBITDA was revenue increased by 2.6% despite a significant bus operating profit of £100.4m was up 8.0% in 1.36x, slightly below our target range. Adjusted reduction in Quality Incentive Contract bonus the year and in line with our expectations, net debt reduced by £5.4m to £239.3m in the revenue resulting from roadworks and congestion enabling us to achieve our target of £100m of year, while EBITDA was down by £9.6m in the capital. Like for like growth in rail revenue bus operating profit this financial year. Our rail to £175.6m. of 4.6% is the result of growth in passenger division performance was ahead of our initial 2020 target To maintain adjusted net debt/ numbers and regulated rail fares set by the expectations with adjusted operating profit for EBITDA within our target range of 1.5x and 2.5x government. Regulated rail fare increases are the year of £57.0m, up 36.7%, helped by throughout the economic cycle. passed back to the government through the improved insurance claims costs and lower premium or subsidy payment of each franchise. fuel costs. 2020 target To maintain growth at broadly similar Bus target To maintain industry leading margins. levels to those consistently delivered over Rail target Deliver value from existing franchises recent years. and achieve margins nearer the industry average of 3%.

Like for like revenue growth (%) Adjusted operating profit (£m) Adjusted net debt/EBITDA (X)

Regional bus London bus Rail 10 200 2.0 1.87 9.6 1.80

8 157.4 150 1.5 1.45 7.5 7.3 134.7 1.36* 6.9 1.32 6 118.8 6.1

5.8 110.2 100 102.5 1.0 5.0 4.7 4.6 4.4 4.3 4 4.3

50 0.5 2.6 2 2.4 1.8

12 13 14 15 16 12 13 14 15 16 12 13 14 15 16 * Not adjusted for the incremental impact of IAS 19 (revised), in line with the 2021 revolving credit facility.

38 The Go-Ahead Group plc I Annual Report and Accounts 2016 Cashflow/Adjusted EBITDA Dividend cover

What does it mean? This ratio is used to monitor What does it mean? We measure the level by report Strategic the conversion of operating profit into which our dividend payments can be covered by operating cash. earnings (adjusted earnings per share divided by Why is it important? Good performance against dividend per share). this KPI demonstrates strong working capital Why is it important? We are committed to management and financial discipline. Strong cash delivering shareholder value through our dividend generation provides liquidity. policy. We measure our dividend cover to help us Risks Not generating sufficient earnings to assess how much of our profits we can pay to reinvest in the business. shareholders as a dividend whilst allowing sufficient retained earnings to invest in the Governance 2016 performance Cashflow generated from Governance business. operations* was 1.00 times EBITDA**. Negative working capital after adjusting for restricted cash Risks Insufficient or unsustainable dividend cover in 2014/15 was predominately in the rail business could result in the dividend being reduced. and reflects changes in the London Midland and 2016 performance Dividend cover was in line Southern franchise agreement. The nature of our with our policy at 2.30 times earnings on a rail business can lead to large working capital pre-IAS 19 basis. Further to a 6.5% increase in the movements at certain times of year, which can interim dividend, the Board has proposed a final Financial statements result in some fluctuations from year to year due dividend of 67.52 per share, increasing the full Financial statements to timing of payments and receipts. Our London year dividend to 95.85p, up 6.5%, from 90.0p. bus contracts run for five years with a possible 2020 target Maintain adequate dividend cover two year extension. Capital expenditure throughout the economic cycle, in line with our requirements in this division are impacted by the policy of 2x cover, excluding the incremental timing of contract renewals. impact of 1AS 19 (revised). 2020 target To match or exceed cashflow generated from operations to EBITDA. Shareholder information Shareholder information

* excluding restricted cash movement. ** adjusted for the incremental impact of IAS 19 (revised).

Cashflow/EBITDA (X) Dividend cover (X)

1.0 0.98 1.00 2.5 0.93 2.30 0.8 2.0 2.04 2.02 0.76 1.97 0.71 1.72 0.6 1.5

0.4 1.0

0.2 0.5

12 13 14 15 16 12 13 14 15 16

The Go-Ahead Group plc I www.go-ahead.com 39 Managing risk

Adrian Ewer, Chairman of the audit committee Managing our risks and embracing our opportunities effectively

Through the effective management of risk and by embracing Risk culture opportunities we will be in a strong position to deliver our We endeavour to foster an environment where people feel strategic goals and enhance shareholder value. comfortable raising issues and management teams treat all concerns seriously. This approach is designed to highlight Risk appetite potential problems and issues at an early stage so that prompt The Board is responsible for determining the overall risk action can be taken to minimise any impact on the business. management framework for the group and for reviewing and The newly launched culture change programme to embed our establishing the appropriate level of risk to be taken in pursuit vision, beliefs and attitudes will support the wider adoption of of strategic goals. the culture the Board wants to achieve. Strong internal Setting the risk appetite for the Group is an integral part of communications material, and regular ‘better together’ forums the development of corporate strategy and the Board debates and cross functional and operating company meetings assist in the risks around each strategic area during the planning sharing experiences and good practice between teams. process. Where current risk levels are outside approved tolerance levels, management is required to develop Identifying, assessing and managing risks appropriate mitigations. The principal risks that face the Group are identified by the Board and through the year there is a process to review the Risk environment most significant risks and ideally the emergence of new and The Group’s business involves the operation and maintenance potential risks. There are also regular audit committee meetings of buses and trains. The Board is conscious of risks to the to monitor how the Group is managing its risks. public, our customers and our people. In addition to developing systems and procedures to ensure compliance with Identifying and prioritising our risks legal, regulatory and other requirements, the Board strives to The way in which we identify and prioritise risk shapes our create an open culture where we learn from our experiences approach to delivering our strategic objectives. as part of a continuous drive to improve. When operations start in Singapore in September 2016 and Germany in 2019, care will be taken to implement the same high standards.

40 The Go-Ahead Group plc I Annual Report and Accounts 2016 Viability statement Ongoing process for risk identification, The directors have assessed the Group’s viability over a three-year period to June evaluation and management 2019. This is consistent with the period covered by the Group’s corporate plan which is the basis for the three years of the The Board strategic plan. This gives the Board greater • Sets strategic priorities confidence in the forecasting assumptions • Agrees the Group’s appetite for risk and assesses risks and tolerance levels and makes sure used. In making its assessment, the Board

they are appropriately managed report Strategic took account of the Group’s current financial • Sets delegated levels of authority position, its operational performance and • Approves Group policy and procedures as needed both its contracted and anticipated capital expenditure. It also assessed the potential financial and operational impacts, in severe but plausible scenarios, of the principal risks and uncertainties set out on pages 42 to 45, the likely mitigating actions and the Executive directors Group risk management Audit committee effectiveness of those mitigating actions. Monitor performance and process Monitors risk management Governance changes in key risks Provides guidance and advice and assurance arrangements Governance Based on this assessment, the directors have to operating companies to a reasonable expectation that the Group will Provide regular reports and assist with: Effectiveness of risk be able to continue in operation and meet updates to the Board control processes all of its liabilities as they fall due during the • Identifying risks, assess viability review period. In making this Local operating extent of risks’ impact Review of the effectiveness statement, the directors have made the companies and implement of key risk management and control processes through following key assumptions: • Identify, manage and mitigating actions Financial statements • Funding for the Group is available in the report local risks • Health and safety • Internal audit Financial statements form of capital markets debt, bank debt or • Maintain local risk • Insurance • External audit alternatives and sufficient funding will be management plans Reports to the Board and • Insurance available in all plausible market conditions • Implement the audit committee on the • Risk surveys • The UK proposals in respect of The Bus mitigating actions status of key risks Services Bill will have limited impact on the Group’s regional bus business in the period under review Shareholder information Shareholder information • The Group will continue to work effectively with the DfT in resolving issues Supporting risk management – lines of defence arising from the operation and 1. 2. 3. implementation of change in the Local operating Group Independent GTR franchise companies support assurance

Risk review Managing risk is an integral part of what our The review found that there was an inherent By introducing these enhancements, the process management think about every day, with robust and embedded understanding of the key risks of risk and internal control assessment and the risk management processes having supported facing the Group on a day to day basis. Our related discussions have improved considerably the day to day business operations and decision approach to risk management was centred on while keeping risk management practical and making for some time. As Go-Ahead continues the hands-on nature of the Group Chief proportionate to the needs of the business. to grow and develop, it is a key responsibility of Executive and senior management and a close These enhancements also support compliance the Board to ensure that it maintains effective working relationship with the operating with the new provisions of the UK Corporate internal control systems and adequately companies where risk was identified, discussed Governance Code 2014 and the spirit of the manages the risks facing the Group. and action taken as appropriate. Code’s guidance. During the year, an independent review of the The review did identify that risk management Group’s existing risk management processes could be enhanced in certain areas, particularly was undertaken by PwC, which is also the around assessing the controls in place to Group’s internal auditor. The objective of this manage the risks, improving the focus of the review was to assess whether the existing risk discussions at the biannual operating companies management framework was fit for purpose, board meetings at which the risk registers are supported the delivery of business objectives formally discussed and the subsequent flow of and was embedded appropriately information to the audit committee. throughout the Group.

The Go-Ahead Group plc I www.go-ahead.com 41 Managing risk continued

Prioritising our principal risks A robust assessment has been undertaken by Risk heat map External risks the Board to assess the principal risks facing These heat maps show the position of our 1. Economic environment the Group and consideration has been given principal risks in relation to others, the impact and Lower economic growth or reduction in to those that threaten our business model, likelihood both before and after mitigating actions economic activity. could impact on our future performance, have taken place, as well as the level of 2. Political and regulatory framework solvency or liquidity as well as our strategic management focus associated with each risk. Changes to the legal and regulatory objectives. The principal risks are those which framework, particularly the Bus Services Bill. could potentially have an impact on the Pre-mitigation Group’s strategic objectives within the next Impact Strategic risks six to twelve months. 3. Sustainability of rail profits or loss The executive directors, supported by other 6 of franchise senior management, are responsible for Failure to retain key franchises on acceptable creating mitigation plans to manage these risks. 9 3 2 terms or failure to stabilise GTR’s business Appropriate mitigations are developed for performance. 1 each risk and communicated to those 4. Inappropriate strategy or investment accountable for implementation. Most of the Failure to make appropriate strategic or mitigating actions are the responsibility of 5 7 4 investment decisions. Go-Ahead’s operating companies. 8 5. Competition Another important element of identifying and Competition from existing and new market prioritising risks is managed at operating participants, loss of business to other modes company level, where management teams are and threats from market disruptions. responsible for identifying, assessing and managing their local risks. Operational risks 6. Catastrophic incident or severe infrastructure failure An incident, such as a major accident, an act Likelihood of terrorism, a pandemic, or a severe failure Post-mitigation of rail infrastructure. 7. Large scale infrastructure projects Impact Disruption caused by large scale projects on and around the networks on which we operate, such as the Thameslink programme, 6 HS2, and major roadworks. 3 8. Labour costs, employee relations and 9 resource planning 2 Failure to secure the effective engagement 1 of our people and trade unions in making change and managing costs. 4 8 5 7 9. Information technology failure or interruption, or security breach Prolonged or major failure of the Group’s IT systems or a significant security breach which could pose significant risk to the ability to operate and trade.

Likelihood

Risk type

External risks

Strategic risks

Operational risks

42 The Go-Ahead Group plc I Annual Report and Accounts 2016 External risks Strategic risks

1 2 3

Economic environment Political and regulatory framework Sustainability of rail profits Lower economic growth or reduction in Changes to the legal and regulatory framework, or loss of franchise economic activity. particularly the Bus Services Bill. Failure to retain two key franchises on acceptable terms and failure to stabilise GTR’s report Strategic Potential impact Potential impact business performance. Reduced revenue as: • If bus services are franchised, the Group could lose revenue in some areas but has Potential impact • Customers make fewer journeys opportunity in others • Rail revenues and profits could fall over the • Customers buy lower priced tickets • Change to the rail franchising model next three years • Reduced funding for public transport Mitigating actions Mitigating actions • Continue to focus our operations in more Mitigating actions • Flexible and experienced management team Governance resilient geographical areas Governance • Limited exposure to local authority funding. which responds quickly and expertly to • Local management constantly assesses the Our operations are largely commercial changing circumstances needs of local markets and tailors services and • Actively participate in key industry, trade and • Shared risk through Govia, which is 65% products accordingly government steering and policy owned by Go-Ahead and 35% by Keolis • Focus on driving volumes through innovative development groups • Invest in performance improvements and targeted marketing • Collaboration and partnership working with • Work constructively with industry partners, • Generate customer loyalty through initiatives local authorities such as Network Rail, to deliver long term Financial statements such as smart-ticketing Financial statements • Prepare for bus franchising economic and infrastructure benefits • Proactive cost control • Demonstrate the value delivered by the • Significant resource and financial investment in private sector through investment in services, bidding for new franchises Opportunity responding quickly and flexibly to • Regular Board review of rail performance, and • Maximise geographic and product passenger needs Board approval of overall rail bidding strategy diversification opportunities • Compliance with franchise conditions • Two rail contracts will be re-bid over the next Opportunity closely monitored two years allowing for a rebasing of • The political and regulatory framework Shareholder information • Recovery plan for GTR Shareholder information target revenue provides us with the opportunity to influence decisions through close dialogue with the Opportunity Change in risk in the year government, local authorities and • Economic growth rates for UK have been other key parties • Opportunity to build on rail contract wins in Germany and potentially other downgraded following the EU referendum vote • The Bus Services Bill could provide business European countries • There are variances between geographical opportunities in new markets areas in the rate of recovery Change in risk in the year Change in risk in the year • The GTR franchise has seen a difficult year as • Following the EU referendum and changes in a result of the impact of major infrastructure government, uncertainty around the outlook projects and industrial action for government policy has increased • We are heavily reliant on third parties, which • The Bus Services Bill relating to bus franchising have their own targets, budgets and outside of London. The Bill is currently making deadlines to meet its way through Parliament • We began operating the London Midland franchise under new contract terms in April 2016 which will run until October 2017

The Go-Ahead Group plc I www.go-ahead.com 43 Managing risk continued

Strategic risks continued Operational risks

4 5 6

Inappropriate strategy or investment Competition Catastrophic incident or severe Failure to make appropriate strategic or Competition from existing and new market infrastructure failure investment decisions. participants, loss of business to other modes and An incident, such as a major accident, an act threats from market disruptors. of terrorism, a pandemic, or a severe failure of Potential impact rail infrastructure. • Shareholder value could be lost and the Group Potential impact could suffer reputational damage • Loss of revenue and profits as well as Potential impact reputational damage if other offerings appear • Serious injury to the public, our passengers or Mitigating actions more customer focused our people. Service disruption with financial • Comprehensive strategic discussions with main losses and reputational damage Mitigating actions Board and advisors • Disciplined and focused bidding in London Mitigating actions • Extensive valuation and due diligence, supported by external expertise • Adapt to changing customer requirements and • Rigorous, high profile health and safety technological advancements programme throughout the Group • Maintain strong financial discipline when assessing viability of opportunities • Foster close relationships with stakeholders to • Appropriate and regularly reviewed and tested ensure we are meeting requirements, including contingency and disaster recovery plans • Cautious approach to investment service quality and price opportunities overseas and outside our • Thorough and regular staff training core operating areas • Work in partnership with local authorities and • Work closely with our industry partners, such other operators • The Board has a clear stated risk appetite that as Network Rail, which maintains the rail governs the acceptable level of risk in pursuit • Promote multi-modal travel, improving infrastructure of objectives the overall door-to-door experience for passengers Opportunity • The threat of such an event requires our staff Opportunity • Remain at the forefront of promoting and to be well trained and prepared at all times • Continual focus on and review of strategy introducing inter-operable ticketing schemes ensures the Board is well placed to assess • Focus on customer needs and expectations, • Continuous review of processes and value adding opportunities as they arise including more channels for ticket purchase procedures can identify areas for operational and journey planning improvement and improve overall safety on Change in risk in the year our networks • Good strategic progress has been made during Opportunity the year. Continued focus on delivering profit • Strategic partnerships provide opportunities Change in risk in the year growth in bus and aim to improve the passenger experience • We have maintained high levels of safety • Go-Ahead has a clear strategy, communicated and perception of public transport as a whole performance, demonstrating our continuing efforts to minimise this risk to all levels of the organisation • Increased competition in the market encourages innovation which improves the customer experience

Change in risk in the year • The reduction in oil price, leading to lower fuel prices for motorists could result in passengers taking more trips in private cars rather than choosing public transport • Technology based start-ups are entering transport markets

44 The Go-Ahead Group plc I Annual Report and Accounts 2016 7 NEW 8 9

Large scale infrastructure projects Labour costs, employee relations Information technology failure or Large scale projects on and around the networks and resource planning interruption or security breach on which we operate, such as the Thameslink We fail to get the effective engagement of our Prolonged or major failure of the Group’s IT Programme, HS2 and major roadworks. people and trade unions in making change and systems or a significant security breach. report Strategic managing costs. Potential impact Potential impact • Reduced capacity decreases resilience and Potential impact • Disruption to trading and/or operational creates congestion causing lower reliability • Strikes leading to reputational damage service delivery which impacts service levels and • Low levels of morale and engagement lead to • Reputation damage and regulatory breach contractual performance inadequate customer service from misuse of data • Inadequate planning or execution can cause • Service disruption and costs arising from • Financial loss severe disruption industrial action Governance Mitigating actions Governance Mitigating actions • Inability to deploy new technology and work practices for the benefit of customers • Process standardisation and continued • Work constructively with industry partners, investment in best practice systems, including such as Network Rail, to minimise the impact • Wage costs increase or are higher ‘light sites’ and ‘load bearing’ servers of any disruption on our passengers than necessary • Clear and tested business continuity plans • Strong engagement with stakeholders, Mitigating actions • Proactive approach to cyber security issues including our customers, to enable effective • Work to maintain good relationships with Financial statements communication Financial statements employees and trade unions Opportunity • Good relationships with local authorities and • Ensuring our systems and processes are industry bodies, such as the DfT • Robust and regularly reviewed recruitment and retention policies, training schemes, resource efficient and reliable strengthens day-to-day • Communicate effectively with customers planning and working practices operations across the Group during structural change programmes and • Experienced approach to wage negotiations during disruption Change in risk in the year • Employee engagement surveys across all • Continued investment in and maintenance of Opportunity businesses to identify issues IT systems across the Group Shareholder information Shareholder information • Investment in railway infrastructure and roads • Engaging all our people in the new vision, • Cyber security certification achieved will deliver long term benefits to passengers beliefs and attitudes travelling on our services Opportunity Change in risk in the year • Through fostering positive employee relations • Our rail operations have been impacted by and offering good employment packages we works associated with the £6.5bn Thameslink have a motivated and committed workforce, Programme, particularly around London Bridge with low staff turnover across all businesses • Congestion due to roadworks in London has • We are monitoring the impact of changes in reduced our income from Quality the employment market which may affect our Incentive Contracts ability to retain and recruit staff

Change in risk in the year • Operational challenges on the GTR franchise have been compounded by industrial action and a spike in sickness absence

The Go-Ahead Group plc I www.go-ahead.com 45 Finance review

Patrick Butcher, Group Chief Financial Officer

The Group once again delivered a robust financial performance in the year ended 2 July 2016 and is in a strong financial position.

Where adjusted figures are referred in this report, the statutory figures have Adjusted profit attributable to shareholders excluding amortisation, goodwill been adjusted to remove the incremental impact of IAS 19 (revised). A full impairment and exceptional operating costs and the incremental impact of disclosure of the adjustments applied is set out in the finance review. Unless IAS 19 (revised) for the year increased by £16.7m, or 21.4%, to £94.7m otherwise stated, reference made to operating profit throughout this report (2015: £78.0m) and adjusted earnings per share rose 21.3% to 220.5p excludes amortisation, goodwill impairment and exceptional operating costs. (2015: 181.8p). The financial year ended 2 July 2016 was a 53 week year compared with the Net cash at the year end of £323.0m (2015: £292.9m) reflects £30.1m of year ended 27 June 2015 which was 52 weeks. additional cash, the majority of which is restricted. The higher cash balance is largely due to working capital movements relating to timing of franchise Overview and highlights payments. The adjusted net debt (net debt plus restricted cash) to EBITDA Revenue for the year was £3,361.3m, up £146.1m, or 4.5%, on last year ratio of 1.36x (2015: 1.32x) is below our target range of 1.5x to 2.5x. (2015: £3,215.2m), with growth in both bus and rail divisions. The majority of this increase was attributable to rail performance, predominantly due to a full year of operation of the GTR franchise following its introduction on 14 September 2014.

Adjusted Group income statement 2016 IAS 19 (revised) 2016 Adjusted 2015 IAS 19 (revised) 2015 Adjusted £m adjustment £m £m adjustment £m Regional bus operating profit 49.7 3.6 53.3 46.7 2.0 48.7 London bus operating profit 43.6 3.5 47.1 42.3 2.0 44.3 Total bus operating profit 93.3 7.1 100.4 89.0 4.0 93.0 Rail operating profit 27.1 29.9 57.0 25.7 16.0 41.7 Operating profit* 120.4 37.0 157.4 114.7 20.0 134.7 Amortisation and goodwill impairment (3.0) (0.4) (3.4) (9.1) (1.9) (11.0) Exceptional operating costs – – – (8.8) – (8.8) Operating profit 117.4 36.6 154.0 96.8 18.1 114.9 Net finance costs (17.6) 2.1 (15.5) (18.1) 2.3 (15.8) Profit before tax 99.8 38.7 138.5 78.7 20.4 99.1 Total tax expense (18.5) (7.7) (26.2) (19.4) (4.2) (23.6) Profit for the period 81.3 31.0 112.3 59.3 16.2 75.5 Non-controlling interests (11.6) (8.3) (19.9) (7.1) (3.9) (11.0) Profit attributable to shareholders 69.7 22.7 92.4 52.2 12.3 64.5 Adjusted profit attributable to shareholders* 94.7 78.0 Weighted average number of shares (m) 43.0 42.9 Adjusted earnings per share (p)** 220.5 181.8 Proposed dividend per share (p) 95.85 90.0 * Before amortisation, goodwill impairment and exceptional operating costs. ** See the notes to the consolidated financial statements for the full calculation of adjusted earnings per share.

46 The Go-Ahead Group plc I Annual Report and Accounts 2016 The 2016 and 2015 statutory results are principally adjusted for the would have arisen under IAS 19 (revised) prior to the changes made to the incremental impact of applying IAS 19 (revised) in 2011 and also intangible standard in 2011. Intangible asset amortisation represents the non-cash cost asset amortisation. IAS 19 (revised) was introduced in 2011 and was first of amortising intangible items including acquired contracts and software effective for the June 2014 year end. It amended the methodology for costs. The charge associated with these previously acquired assets can be recognition of the interest and service costs associated with the present significantly different year on year reflecting the amortisation profile and the value of assets and liabilities for pension schemes. This includes rail pension timing of when the acquired contracts/software developments arose and is schemes where liabilities represent future commitments which are well therefore removed. In previous periods we have also removed exceptional beyond the period covered by the Group’s rail franchises. The standard items such as one-off restructuring costs and intangible asset impairments requires that the cost of providing pension benefits in the future is when they arise. The Board believes that these adjusted key performance discounted to a present value using corporate bond yield rates. As indicators give a clearer and more consistent measure of the Group’s Strategic report Strategic corporate bond yields vary over time, this creates inherent volatility in the underlying performance. Group Income Statement and Group Balance Sheet. These two factors The commercial entities in the UK rail industry were created at the time of make the Group’s current non-cash IAS 19 (revised) charge privatisation and the relationships between them are governed by a number disproportionately higher and more volatile than the cash contributions the of contracts between the major participants; the DfT, Network Rail and train Group is required to make in order to fund the future liabilities for which it operating companies. In arriving at the operating profit numbers for the rail is responsible. The Group accordingly believes a more relevant and division, management have made judgements on the outcome of contractual consistent measure of the cost of providing post-employment benefits is the discussions with Network Rail and the DfT. These principally relate to the underlying contribution excluding the volatile element of IAS 19 (revised). allocation of financial responsibility for train cancellations and delays. Accordingly the charge applied in the adjusted results reflects that which Governance Five year Group operating profit including and excluding the incremental impact of IAS 19 (revised) 2016 2015 2014 2013 2012 £m £m £m £m £m Group operating profit* 120.4 114.7 103.2 86.7 95.6 Incremental impact of IAS 19 (revised) 37.0 20.0 15.6 15.8 14.6 Adjusted Group operating profit* 157.4 134.7 118.8 102.5 110.2

* Before amortisation, goodwill impairment and exceptional operating costs. Financial statements

Five year adjusted earnings per share (EPS) including and excluding the incremental impact of IAS 19 (revised) 2016 2015 2014 2013 2012 Statutory basic earnings per share 162.3p 121.6p 164.0p 125.3p 129.5p Adjusted EPS including IAS 19 (revised) 167.2p 150.8p 148.6p 117.6p 123.8p Incremental impact of IAS 19 (revised) 53.3p 31.0p 24.0p 22.0p 18.1p Adjusted EPS excluding incremental impact of IAS 19 (revised) 220.5p 181.8p 172.6p 139.6p 141.9p Shareholder information

Revenue and adjusted operating profit by division Increase/ Increase/ 2016 2015 (decrease) (decrease) £m £m £m % Revenue Regional bus 375.7 359.9 15.8 4.4 London bus 487.6 457.9 29.7 6.5 Total bus 863.3 817.8 45.5 5.6 Rail 2,498.0 2,397.4 100.6 4.2 Total 3,361.3 3,215.2 146.1 4.5 Adjusted operating profit Regional bus 53.3 48.7 4.6 9.4 London bus 47.1 44.3 2.8 6.3 Total bus 100.4 93.0 7.4 8.0 Rail 57.0 41.7 15.3 36.7 Total 157.4 134.7 22.7 16.9

The Go-Ahead Group plc I www.go-ahead.com 47 Finance review continued

Earnings per share Cashflow Adjusted earnings (net profit after tax attributable to members before Cash generated from operations before tax and excluding movements in amortisation, goodwill impairment, exceptional operating costs and the restricted cash was £212.4m (2015: £145.9m). This increase of £66.5m is incremental impact of IAS 19 (revised)) were £94.7m (2015: £78.0m), largely due to movements in working capital, primarily reflecting structural resulting in an increase in adjusted earnings per share from 181.8p to 220.5p. changes in rail franchises. Tax paid of £24.8m (2015: £20.3m) comprised payments on account in respect of the current and prior years’ liabilities. Net The weighted average number of shares was 43.0 million interest paid of £13.0m (2015: £14.3m) is lower than the charge for the (2015: 42.9 million), and the number of shares in issue, net of treasury period of £17.6m (2015: £18.1m) after excluding the impact of non-cash shares, was 43.0 million (2015: 43.0 million). interest on pensions and the unwinding of discounting on provisions. Capital expenditure, net of sale proceeds, was £58.5m higher in the year at £106.4m Dividend (2015: £47.9m) predominantly due to increased investment in both the The Board is proposing a total dividend for the year of 95.85p per share regional bus and London fleet. Investment in the bus division is expected to (2015: 90.0p), a rise of 6.5%, following a 6.5% increase in the interim be around £110m in 2016/17 due to the timing of London bus contract dividend. This includes a proposed final payment of 67.52p per share renewals and continued investment in our regional bus operations. (2015: 63.4p) payable on 25 November 2016 to shareholders registered at the close of business on 11 November 2016. During the financial period, as part of a 12 month planned programme of monthly share purchases, the Group repurchased 172,964 ordinary shares Dividends of £39.4m (2015: £36.7m) paid in the period represent the for a total consideration of £4.4m (2015: no shares repurchased). payment of the prior year’s final dividend of 63.4p per share (2015: 59.0p) and the interim dividend in respect of this year of 28.33p per share Significant medium term finance is secured through our revolving credit (2015: 26.6p). Dividends paid to non-controlling interests were £17.8m facility (RCF) and £200m sterling bond. The £280m five year RCF had an (2015: £12.8m). Excluding the non-cash incremental impact of IAS 19 initial maturity of July 2019 with two one year extension options, the second (revised), dividend cover was 2.30x (2015: 2.02x). of which was agreed on 20 June 2016, extending the maturity of the facility to July 2021. The sterling bond is due to expire in September 2017. On 26 August 2016 the Group agreed a bridging facility of £200m to give timing Summary cashflow options around the repayment of the sterling bond. The facility is expected Increase/ to remain undrawn as it is most likely that the bond will be replaced with a 2016 2015 (decrease) £m £m £m similar long term instrument. The bridging facility is available during Adjusted EBITDA* 212.6 205.2 7.4 September 2017 to facilitate repayment of the bond and, if drawn, contains Working capital/other items four extension options of six months each. (excluding restricted cash movements) (0.2) (59.3) 59.1 Capital expenditure Cashflow generated from Expenditure on capital during the year can be summarised as: operations 212.4 145.9 66.5 2016 2015 Tax paid (24.8) (20.3) (4.5) £m £m Net interest paid (13.0) (14.3) 1.3 Regional bus 57.4 28.0 Net capital investment (106.4) (47.9) (58.5) London bus 38.7 8.1 Free cashflow 68.2 63.4 4.8 Total bus 96.1 36.1 Net acquisitions (0.5) (0.4) (0.1) Rail 17.8 6.2 Joint venture repayment – 1.8 (1.8) Group total 113.9 42.3 Other (5.1) – (5.1) Dividends paid (57.2) (49.5) (7.7) Net cash/debt Decrease in adjusted net Net cash of £323.0m (2015: £292.9m) comprised the £200m debt** 5.4 15.3 (9.9) sterling bond, amounts drawn down against the £280m five year RCF Opening adjusted net of £113.0m (2015: £111.0m), and hire purchase and lease agreements debt** (244.7) (260.0) n/a of £0.3m (2015: £0.3m), offset by cash and short term deposits of £636.3m Closing net debt (239.3) (244.7) n/a (2015: £604.2m) including £562.3m of restricted cash in rail (2015: £537.6m). There were no overdrafts in use at the year end (2015: £nil). * Operating profit before interest, tax, depreciation, amortisation, goodwill impairment, exceptional operating costs and the incremental impact of Our primary financial covenant under the 2016 RCF was an adjusted net IAS 19 (revised). debt to EBITDA ratio of not more than 3.5x. Adjusted net debt (net debt ** Adjusted net debt is net cash less restricted cash. plus restricted cash) to EBITDA of 1.36x (2015: 1.32x) remains under our target range of 1.5x to 2.5x.

48 The Go-Ahead Group plc I Annual Report and Accounts 2016 Capital structure Non-controlling interest 2016 2015 On a statutory basis, the non-controlling interest in the income statement £m £m of £11.6m (2015: £7.1m) arises from our 65% holding in Govia Limited Five year syndicated facility 2019/2021 280.0 280.0 which owns 100% of our current rail operations and therefore represents 7.5 year £200m 5.375% sterling bond 2017 200.0 200.0 35% of the profit after taxation of these operations. Total core facilities 480.0 480.0 Amount drawn down at 2 July 2016 313.0 311.0 Pensions Balance available 167.0 169.0 Statutory operating profit includes the net cost of the Group’s defined Restricted cash 562.3 537.6 benefit pension plans for the year of £90.8m (2015: £68.9m) consisting of Net cash (323.0) (292.9) bus costs of £1.4m (2015: £2.7m) and rail costs of £89.4m (2015: £66.2m). report Strategic Adjusted net debt 239.3 244.7 Group contributions to the schemes totalled £48.3m (2015: £46.2m). EBITDA* 175.6 185.2 Adjusted EBITDA** 212.6 205.2 Bus pensions Adjusted net debt/EBITDA* 1.36x 1.32x Under accounting valuations, the net deficit after taxation on the bus Adjusted net debt/EBITDA** 1.13x 1.19x defined benefit schemes was £2.2m (2015: £47.6m), consisting of pre-tax liabilities of £2.7m (2015: £59.5m) less a deferred tax asset of £0.5m * Not adjusted for the incremental impact of IAS 19 (revised), in line with new (2015: £11.9m). The pre-tax deficit consisted of estimated liabilities 2021 RCF. of £765.8m (2015: £718.7m) less assets of £763.1m (2015: £659.2m).

** Adjusted for the incremental impact of IAS 19 (revised). The percentage of assets held in higher risk, return seeking assets was Governance Our investment grade ratings from Moody’s (Baa3, stable outlook) and 48% (2015: 51%). Standard & Poor’s (BBB-, stable outlook) remain unchanged. Rail pensions Net finance costs As the long term responsibility for the rail pension schemes rests with the DfT the Group only recognises the share of surplus or deficit expected to On a statutory basis, net finance costs for the year were slightly behind the be realised over the life of each franchise. At the year end we recorded a prior year at £17.6m (2015: £18.1m) including finance costs of £20.8m pre-tax liability of £nil (2015: £nil). (2015: £20.5m) less finance revenue of £3.2m (2015: £2.4m). The average Financial statements net interest rate for the period was 4.2% (2015: 4.2%).

Amortisation and goodwill impairment On a statutory basis, the amortisation and goodwill impairment charge for the year was £3.0m (2015: £9.1m), which relates to the non-cash cost of amortising software costs, franchise bid costs and customer contracts. The Patrick Butcher, prior year charge of £9.1m included a goodwill impairment charge of £4.9m. Group Chief Financial Officer Shareholder information Exceptional operating costs 8 September 2016 Total exceptional operating costs in the year were £nil (2015: £8.8m). Prior year exceptional operating costs related to rail restructuring of the GTR franchise bringing Thameslink and Greater Northern together with Southern and Gatwick Express under one management structure.

Taxation On a statutory basis, net tax for the year was £18.5m (2015: £19.4m), equivalent to an effective rate of 18.5% (2015: 24.7%), below the UK statutory rate for the period of 20% (2015: 20.75%). Excluding the impact of the deferred tax rate reduction of £3.7m, the tax rate would have been 22.2%, as a result of non-deductible items such as German and Singaporean bid costs. In the year ended 27 June 2015, the underlying rate, excluding goodwill impairment of £4.9m, was 23.2%. The statutory rate will reduce to 19% and 17% in 2017 and 2020 respectively. We expect our effective tax rate to be 2% to 3% above the statutory rate in future years.

The Go-Ahead Group plc I www.go-ahead.com 49 50 The Go-Ahead Group plc I Annual Report and Accounts 2016 Business review Bus Go-Ahead is a leading bus operator in the UK both in and outside London. Around two million passenger journeys are made on our services every day. report Strategic

Overview Bus overview 2016 2015 We are pleased that our target to grow adjusted Total bus operations operating profit in bus to £100m by 2015/16 has Revenue (£m) 863.3 817.8 now been achieved, as planned. Adjusted operating profit* (£m) 100.4 93.0 Overall, our bus operations achieved record full Adjusted operating profit margin 11.6% 11.4% Governance year profits, with good revenue growth and Regional bus cost control. Revenue (£m) 375.7 359.9 Adjusted operating profit* (£m) 53.3 48.7 Regional bus Adjusted operating profit margin 14.2% 13.5% Our strategy is to grow our share of the regional London bus UK bus market both organically and through Revenue (£m) 487.6 457.9

value adding acquisitions. We have improved Financial statements Adjusted operating profit* (£m) 47.1 44.3 operating profit margins by stimulating revenue Adjusted operating profit margin 9.7% 9.7% growth and through continued cost efficiencies. We remain committed to our long-standing Like for like revenue growth approach of providing high quality and value for Regional bus 2.4% 2.6% money services for our local markets, combined London bus 4.4% 1.8% with our innovative approach to marketing, Like for like volume growth smart-ticketing and other customer solutions. This Regional bus passenger journeys 0.0% (1.4%) is key to revenue generation, whilst cost savings

London bus miles operated 2.3% (0.9%) Shareholder information will be achieved through benchmarking, sharing * Adjusted to exclude amortisation, goodwill impairment, exceptional operating costs, and the incremental impact best practice and the introduction and of IAS 19 (revised). development of further efficiency initiatives. Overall bus performance review London bus Total bus revenue increased by 5.6%, or £45.5m, to £863.3m (2015: £817.8m). The bus division Our strategy is to maintain our sector leading delivered adjusted operating profit of £100.4m (2015: £93.0m), increasing by £7.4m, or 8.0%, in the performance and market position through key year, resulting in a rise in adjusted operating profit margin of 0.2ppts to 11.6%. This performance was in relationships with TfL, through strong and effective line with the Board’s expectations for the year and marks the achievement of our £100m operating management, providing high quality and valued profit target, as planned. operations whilst seeking expansion through additional contract wins and acquisitions. A stable contract base and external factors such as Regional bus operations inflationary revenue growth combine with cost Regional bus revenue was £375.7m (2015: £359.9m), up £15.8m, or 4.4%, with growth in the second efficiencies to contribute toward profit growth. half of the year ahead of that in the first half. Overall, our regional bus operations saw stronger trends in commercial revenue and journey growth in the period, with concessionary revenue and numbers being consistent with the first half of the year. Passenger numbers remained the same year on year and increased 0.5% in the second half despite ongoing weakness in the north east economy, and redevelopment roadworks in and around Oxford.

The Go-Ahead Group plc I www.go-ahead.com 51 Business review continued

Overall, our bus operations achieved record full year profits, with good revenue growth and cost control.

Adjusted operating profit in the regional bus division Our bus financial highlights was £53.3m (2015: £48.7m), up £4.6m, or 9.4%, and adjusted operating profit margins increased to 14.2% (2015: 13.5%). 2016 Bus revenue (£m) Insurance claim costs increased slightly in the year. However, £863.3m (2015: £817.8m) the division benefitted from lower bid costs as well as a reduction in fuel costs, as a result of a lower hedge price.

Go-Ahead London: £487.6m £m Go North East: £101.6m 2015 operating profit 46.7 Go South Coast: £89.6m IAS 19 (revised) adjustment (see finance review) 2.0 Brighton and Hove: £89.9m 2015 adjusted operating profit 48.7 Oxford Bus Company: £51.5m Change in: Plymouth Citybus: £25.2m Revenue growth 15.8 Go East Anglia: £17.9m Cost base increases (13.5) Fuel costs 2.0 Insurance claims (0.8) 2016 Bus operating cost base (£m) Bid costs 1.1 £770.0m (2015: £728.8m) 2016 adjusted operating profit 53.3 IAS 19 (revised) adjustment (see finance review) 3.6 2016 operating profit 49.7 Staff costs: 63.1% 15.2% Fuel: London bus operations Engineering: 8.6% London bus revenue grew by 6.5%, or £29.7m, to £487.6m in 6.2% Depreciation: the year (2015: £457.9m) despite a significant reduction in Other: 6.9% QICs income, impacted by roadworks and congestion in the capital, which eased in the latter part of the second half of the year as roadwork schemes began to conclude. QICs bonuses of £1.1m were received (2015: £4.6m) in the last quarter of the year. Like for like mileage increased by 2.3% following 2016 Adjusted bus operating profit (£m) contract gains and increased volume created by additional £100.4m (2015: £93.0m) buses contracted by TfL to reduce waiting times during extended periods of roadworks. In addition there was a Regional bus London bus higher volume of rail replacement work undertaken. Adjusted 120 70.2 78.2 86.8 93.0 100.4 operating profit in the London bus division was £47.1m (2015: £44.3m), up £2.8m, or 6.3%. Adjusted operating profit 100 53.3 margins remained at 9.7% (2015: 9.7%). As with regional bus, 48.7 43.6 our London operations saw an increase in insurance claim 80 37.9 costs and a reduction in fuel costs, reflecting the lower 35.4 hedge price. 60 47.1 44.3 43.2 £m 40 34.8 40.3 2015 operating profit 42.3 20 IAS 19 (revised) adjustment (see finance review) 2.0 2015 adjusted operating profit 44.3 12 13 14 15 16 Change in: Revenue growth – volume 30.5 Adjusted bus operating profit rose £7.4m, or Revenue growth – price 2.6 8.0%, to £100.4m. Cost – volume increases (22.3) Cost – price increases (4.1) QICs bonuses (3.4) Fuel cost 2.0 Insurance claims (2.5) 2016 adjusted operating profit 47.1 IAS 19 (revised) adjustment (see finance review) 3.5 2016 operating profit 43.6

52 The Go-Ahead Group plc I Annual Report and Accounts 2016 Our performance in the Transport for London (TfL) quality 2016 2017 2018 2019 2020 2021 league tables has been adversely impacted by London % congestion with roadworks concentrated in some of the areas hedged Fully Fully Fully 60% 30% 10% where we are the larger operator. Our performance has Price improved during the last quarter of the year. We operated (pence 99.4% (2015: 99.5%) of our target mileage before traffic per litre) 45.4 36.4 34.7 32.3 33.4 35.1 congestion losses. At each period end the fuel hedges are marked to market Capital expenditure and depreciation price. The increase in the fuel hedge liability during the year represents the increase in the mark to market value of the fuel Net capital expenditure for the bus division was £92.3m report Strategic hedges during the year. (2015: £36.1m), of which £71.8m related to the purchase of new vehicles and a further £12.9m on new depots. Overall bus outlook Investment of £38.6m (2015: £19.9m) was made in introducing Our bus division delivered its strongest ever financial 198 new buses (2015: 122 buses) into our regional bus fleet. performance and achieved one of the Board’s critical business Contract wins in our London bus business led to a spend strategies, to achieve an adjusted operating profit in excess of £33.2m (2015: £5.3m) on 118 new buses (2015: 29 buses). of £100m. The new financial year has begun with similar trends We have a young green bus fleet with an average age of 7.8 to the second half of 2015/16. We expect continued moderate years. Depreciation for the division was £47.8m revenue growth, driven by regional bus performance and Governance (2015: £45.7m). improving QICs payments in London. Significantly reduced fuel costs will help offset any contract Fuel reductions from lower local authority contracting. In the year, the bus division consumed around 130 million litres In regional bus, we will continue to drive revenue growth of fuel at a net cost of £116.8m. through our sector leading marketing initiatives and sales channels, using smart and mticketing to attract and retain a Bus fuel hedging prices

wider market, and further improve the customer experience. Financial statements We have continued with our bus fuel hedging programme We will remain focused on cost efficiency while maintaining the which uses fuel swaps to fix the price of our diesel fuel in quality and reliability of our services. advance. Our core policy is to be fully hedged for the next financial year before the start of that year, at which point we In London bus, growth in contract mileage is expected to be aim to have also fixed at least 50% of the following year and moderate in the full year, mileage overall will reduce with lower 25% of the year after that. This hedging profile is then levels of additional work from TfL to compensate for roadwork maintained on a monthly basis. congestion. Ongoing roadworks and congestion in London have eased and we expect an increase in year on year

With Board approval additional purchases can be made to lock QICs income. Shareholder information future period’s costs in order to create certainty around one of our largest costs. The table below reflects the year end position, In 2016/17, we expect total capital expenditure to be no significant purchases have been made subsequent to the over £100m due to the timing of London contract renewals year end. and continued investment in our regional bus services.

Our operating companies

Revenue: £487.6m Revenue: £101.6m Revenue: £89.6m Revenue: £17.9m Passenger journeys: 478m Passenger journeys: 66m Passenger journeys: 49m Passenger journeys: 8m Average no. of employees: 7,010 Average no. of employees: 2,032 Average no. of employees: 1,613 Average no. of employees: 420

Revenue: £89.9m Revenue: £51.5m Revenue: £25.2m Passenger journeys: 67m Passenger journeys: 24m Passenger journeys: 17m Average no. of employees: 1,451 Average no. of employees: 804 Average no. of employees: 558

The Go-Ahead Group plc I www.go-ahead.com 53 54 The Go-Ahead Group plc I Annual Report and Accounts 2016 Business review Rail Go-Ahead’s rail operation is the busiest in the UK, responsible

for around 35% of all train passenger journeys. report Strategic

Overview The rail division profitability was marginally ahead of the Board’s expectations through better than Our strategy is to deliver the commitments of expected resolutions of contract negotiations, this was despite the operational challenges faced during our existing franchises, provide good customer the year and the fact that GTR did not contribute to profitability. Trading performance in both service and secure future franchises through Southeastern and London Midland remained strong. competitive bidding processes, whilst maintaining the moderate returns generated from this sector. Rail performance review Governance The rail division has delivered a robust financial result in the year, slightly ahead of the Board’s We remain committed and focused on the GTR expectations, helped by contract management benefits in the second half. Overall margins remained at franchise which began as a fully merged operation historically low levels. in July 2015 and delivering the commitments of the directly awarded contracts in Southeastern Overall passenger revenue growth was 4.6% (2015: 7.6%) on a like for like basis, with like for like and London Midland. passenger journey growth of 3.1% (2015: 3.9%). The UK rail market continues to offer significant

opportunities over the coming years. We have an Revenue Financial statements established strong position and a good long term Total revenue increased by 4.2%, or £100.6m, to £2,498.0m (2015: £2,397.4m) consisting of: track record in the industry and we aim to secure Net the future of rail profitability by exploring these 2016 2015 change % and other opportunities. £m £m £m change Passenger revenue UK rail franchises are governed by contracts Southern 61.5 735.7 (674.2) (91.6) between train operators, Network Rail and DfT. These contracts contain detailed performance Southeastern 753.0 728.6 24.4 3.3 regimes allocating financial responsibility and London Midland 330.0 291.8 38.2 13.1 Shareholder information material provisions are made in these results GTR* 1,352.6 484.0 868.6 179.5 reflecting management’s significant experience on Gross passenger revenue 2,497.1 2,240.1 257.0 11.5 the most probable outcomes of settling GTR revenue adjustment** (276.0) (120.9) (155.1) (128.3) these amounts. Total passenger revenue 2,221.1 2,119.2 101.9 4.8 Other revenue Rail overview Southern 7.2 55.8 (48.6) (87.1) 2016 2015 Southeastern 47.2 23.8 23.4 98.3 Total rail operations London Midland 44.3 50.3 (6.0) (11.9) Total revenue (£m) 2,498.0 2,397.4 GTR 62.2 30.8 31.4 101.9 Adjusted operating 57.0 41.7 Total other revenue 160.9 160.7 0.2 0.1 profit* (£m) Subsidy and revenue support Adjusted operating 2.3% 1.7% Southeastern subsidy 61.1 19.8 41.3 208.6 profit margin London Midland subsidy 52.0 56.6 (4.6) (8.1) Like for like passenger Southeastern revenue support – 23.0 (23.0) (100.0) revenue growth Southern revenue support 2.9 18.1 (15.2) (84.0) Southeastern 4.9% 8.5% Total subsidy and revenue support 116.0 117.5 (1.5) (1.3) London Midland 9.3% 5.4% Total revenue 2,498.0 2,397.4 100.6 4.2 GTR 3.4% 8.8% * Passenger revenue collected by GTR on behalf of the DfT. Like for like ** Represents passenger revenue generated and payable to the DfT in excess of the management fee payable to volume growth Go-Ahead for operating the franchise, which is remitted to the DfT. Southeastern 2.3% 3.1% London Midland 5.9% 2.1% GTR 2.9% 6.4% * Adjusted to exclude amortisation, goodwill impairment, exceptional operating costs, and the incremental impact of IAS 19 (revised).

The Go-Ahead Group plc I www.go-ahead.com 55 Business review continued

The rail division delivered a good financial result in the year, slightly ahead of the Board’s expectations.

Our rail financial highlights Group’s overall net contribution to the DfT Net 2016 2015 change % 2016 Rail revenue (£m) £m £m £m change £2,498.0m (2015: £2,397.4m) GTR revenue adjustment 276.0 120.9 155.1 128.3 Southern’s core premium payments 18.8 228.6 (209.8) (91.8) Subsidy receipts – Southeastern (61.1) (19.8) (41.3) (208.6) GTR: £1,210.4m Subsidy receipts – London Midland (52.0) (56.6) 4.6 8.1 Southeastern: £861.3m Revenue support – Southeastern – (23.0) 23.0 100.0 London Midland: £426.3m Revenue support – Southern (2.9) (18.1) 15.2 84.0 Profit share – Southeastern 39.9 23.9 16.0 66.9 Profit share – London Midland 0.6 – 0.6 n/a Revenue share – London Midland 3.1 – 3.1 n/a Group’s overall net contribution to the DfT 222.4 255.9 (33.5) (13.1) The GTR revenue adjustment of £276.0m reflects the difference between passenger 2016 Rail operating cost base (£m) revenue and the franchise payment from the DfT, as set out in the bid model. The GTR £2,470.9m (2015: £2,371.7m) revenue adjustment was a payment to the DfT and increased by £155.1m in the year. Premium payments, profit share payments Staff costs: 28.9% and revenue share payments Track access: 21.0% Core premium payments, profit share payments and revenue share payments are included Rolling stock lease payments: 17.3% in operating costs. EC4T: 4.9% 3.7% Net Engineering: 2016 2015 change Depreciation: 0.3% £m £m £m % change Fuel: 0.4% Southern core premium 18.8 228.6 (209.8) (91.8) Other: 23.5% Southeastern profit share 39.9 23.9 16.0 66.9 London Midland profit share 0.6 – 0.6 n/a 2016 Adjusted rail operating profit (£m) London Midland revenue share 3.1 – 3.1 n/a £57.0m (2015: £41.7m) Adjusted operating profit Adjusted operating profit in the rail division was up £15.3m at £57.0m (2015: £41.7m), with adjusted operating profit margins increasing to 2.3% (2015: 1.7%). The commercial 60 entities in the UK rail industry were created at the time of privatisation and the 57.0 relationships between them are governed by a number of contracts between the major 50 participants; the DfT, Network Rail and train operating companies. In arriving at the operating profit numbers for the rail division, management have made judgements on the 41.7 40 40.0 outcome of contractual discussions with Network Rail and the DfT. These principally 32.0 30 relate to the allocation of financial responsibility for train cancellations and delays. 24.3 Rail bid costs of £5.4m (2015: £9.4m), including around £2.0m on rail franchise activity 20 in Germany. 10

12 13 14 15 16 Adjusted rail operating profit rose £15.3m, or 36.7%, to £57.0m.

56 The Go-Ahead Group plc I Annual Report and Accounts 2016 £m The franchise continued operating under its direct award 2015 operating profit 25.7 contract terms, and whilst it is no longer eligible for revenue support, passenger journeys and revenue levels have exceeded IAS 19 revised adjustment (see finance review) 16.0 bid expectations. Under the new contract, Southeastern made 2015 adjusted operating profit 41.7 a contribution of £39.9m to the government during the year Change in: through a profit sharing mechanism. Southeastern profit improvement 14.9 London Midland profit improvement 7.6 London Midland GTR/Southern profit reduction (13.6) Passenger revenue grew by 9.3% (2015: 5.4%) in the year and Lower bid costs 4.0 passenger numbers increased by 5.9% (2015: 2.1%) on a like report Strategic Lower central costs 2.4 for like basis. London Midland’s trading performance improved 2016 adjusted operating profit 57.0 in the second half of the year. IAS 19 (revised) adjustment (see finance review) 29.9 The franchise entered into a directly awarded contract on 2016 operating profit 27.1 1 April 2016 and in the period to the year end passenger journeys and revenues exceeded bid expectations. We have Individual franchise performance been shortlisted to rebid for the West Midland franchise and look forward to submitting a strong bid. GTR GTR completed the integration of Southern, Gatwick Express, Capital expenditure and depreciation Governance Thameslink and Great Northern to consolidate in one franchise from 26 July 2015. During this first period the Capital expenditure for the rail division was £17.8m franchise has been through significant changes, including training (2015: £6.2m) and depreciation was £7.4m (2015: £24.8m). new drivers, revising the timetable, introduction of new fleet In 2016/17, capital expenditure is expected to be and the implementation of driver controlled operation. around £15m reflecting investment in GTR and Southeastern. Customer satisfaction has been low during this transition as revised timetables have been introduced to create greater Rail outlook certainty for customers during a period of industrial action and Financial statements This year has seen a continuation of the transition started last unprecedented levels of absence. The management team and year in rail, with the industrial relations issues in that franchise the executive directors are focused on delivering franchise being the primary area where a resolution is needed. We obligations in accordance with the agreement with the DfT continue to focus our local management teams on delivering and are endeavouring to restore customer experience to benefits for passengers while working with industry partners, expected levels. During this transitional phase the franchise has such as Network Rail, to minimise the disruption caused by incurred significant costs and has not contributed to rail major infrastructure work associated with the Thameslink division profitability. Programme. Our vision of every journey being taken care of is being cascaded across the franchises with programmes Shareholder information Southeastern underway to enhance the customer experience and make our Southeastern recorded a strong trading performance. Overall vision a reality. passenger revenue increased by 4.9% (2015: 8.5%) on a like for like basis and like for like passenger numbers rose 2.3% Trading in the Southeastern and London Midland franchises (2015: 3.1%). continues to be robust and help offset underperformance in GTR.

Our operating companies

Revenue: £1,210.7m* Revenue: £426.2m Revenue: £861.1m Passenger journeys: 335m* Passenger journeys: 72m Passenger journeys: 186m Average no. of employees: 6,876* Average no. of employees: 2,402 Average no. of employees: 4,191 * The numbers shown for GTR, are combined figures for GTR and Southern operations.

The Go-Ahead Group plc I www.go-ahead.com 57 Introduction to corporate governance

Culture and values We recognise that the Group’s culture is fundamental to our long term sustainable success. It will distinguish us from our competitors and is crucial to the achievement of our strategic goals. Our new vision, attitudes and beliefs will be the drivers for our desired culture. They will ensure the right behaviours and will govern our interaction with customers, stakeholders and employees. The Board will play an important role in the leadership and oversight of cultural change and ensuring that our culture, strategy and capability are all aligned in a way that creates value for our business. Our new vision, attitudes and beliefs, which have been created in collaboration with our employees and stakeholders, put customers at the heart of our business and will support value creation for our key stakeholders, including our shareholders and the wider society. They will underpin our business model and guide Board behaviours and decision making. We are at the beginning of a journey of cultural change and the Board’s role will continue to evolve as these changes are embedded throughout our business. “The Board will play an important For background on our new vision, which is ‘a world where every journey is role in the leadership and taken care of’ see page 33. oversight of cultural change.” Board effectiveness Following the external review of the Board last year, it was agreed that an internal review would be undertaken this year. This was led by the Group Dear Shareholder Company Secretary and assessed progress against the actions agreed as part of last year’s evaluation, in addition to discussing some current themes and As a Board, we are committed to maintaining high standards of common areas of boardroom best practice. corporate governance. I am pleased to report that the review this year concluded that the Board In September 2014, the Financial Reporting Council (FRC) published the continued to function well with good progress having been made in all of latest edition of the UK Corporate Governance Code (the 2014 Code), the areas of improvement identified as part of last year’s evaluation. It is which included a number of changes around directors’ remuneration, risk evident that the changes we make each year in response to these reviews management and internal control, which we have adopted. In the report that have improved the overall effectiveness of the Board. We look to continually follows on pages 58 to 107 and in the shareholder information on pages improve and we will follow up and implement the recommendations from 173 to 175, we set out our governance policies and practices and explain the internal review this year, as set out on page 68. how the Group has applied the main principles and complied with the relevant provisions of the 2014 Code. We also explain some of the specific Risk challenges we faced during the year and how we dealt with them. The Board is ultimately responsible for setting the risk appetite of the Group and ensuring that appropriate risk management systems are in place. During Your Board the year, we commissioned an independent review of our approach to risk The balance of skills, knowledge and experience on the Board and the management which found Go-Ahead’s risk environment and culture to be committees which support the Board are crucial to the effective functioning robust, with an intrinsic understanding and management of risk across the of the Board. I am very happy with the composition of our Board. It is strong Group. There were a number of recommendations which we have and collegiate, in part because its members have relevant and diverse implemented, and which support the additional risk management experience and there is the opportunity for everyone to contribute. We responsibilities placed on the Board as a result of the recent changes to the have constructive and challenging debate, enabling the Board to make the 2014 Code. Details of the review process and results can be found on pages best possible decisions. 41 to 45. Another new requirement of the 2014 Code is for Boards to make an annual viability statement and this can be found on page 41. In March 2016, we welcomed Patrick Butcher to our Board as Group Chief Financial Officer. Patrick is an excellent addition to the Board, bringing strong financial and commercial management capabilities as well as significant transport sector and stakeholder experience. I am confident that Patrick’s skills will complement those of the longer serving directors and will strengthen the Board. Andrew Allner, Details of Patrick’s appointment and induction process can be found on Chairman pages 66 and 81. 8 September 2016

Compliance with the UK Corporate Governance Code Go-Ahead complied in full with the provisions of the Code published in September 2014 which applied throughout the financial year ended 2 July 2016. The Code is issued by the Financial Reporting Council (FRC) and is available for review on the FRC’s website: http://www.frc.org.uk

58 The Go-Ahead Group plc I Annual Report and Accounts 2016 Corporate governance at a glance

Summary of key Board Summary of key highlights Summary of key priorities objectives set for 2015/16 for 2015/16 for 2016/17 • Implement the external Board evaluation • Good progress made implementing the • Drive culture change and ensure all strategic review recommendations recommendations from the external Board decisions are underpinned by the Group’s new • Improve focus in response to rail performance evaluation review with improved Board vision, attitudes and beliefs and customer experience effectiveness as a result • Continue to build relationships with key • Bid for second tranche of work for the • More time spent on stakeholder management stakeholders, with a focus on partnership Singaporean bus market and corporate reputation at Board meetings, with • Ensure the Group’s strategy supports delivering particular focus on GTR, and regular updates value for our customers, employees, shareholders,

• Continue to monitor progressive dividend policy report Strategic from senior management • Implement the changes required to comply stakeholders and the wider society with the 2014 Code including risk process • Successful win of 25 route bus contract • Focus on improving performance and customer and appetite in Singapore services at GTR • Reviewed the Group’s dividend policy, including • Bid for third tranche of work for the Singaporean capital allocation and return opportunities bus market • Independent review of risk framework, with • Continued refinement of dividend and capital enhancements made to support the assessment allocation policy and return to shareholders of risk and risk appetite where appropriate • Schedule ‘deep dive’ reviews into key risk areas

For the full list of objectives, highlights/progress made and priorities categorised under each of our Governance key areas of Board, strategy, contracts, bids and acquisitions, finance and risk and governance, please and continue to develop risk appetite discussions see pages 64 and 65 and assessment

2016 Composition Attendance Directors’ attendance at scheduled and unscheduled meetings they were eligible to attend:

Board Audit committee Remuneration committee Nomination committee Board attendance Scheduled Unscheduled Scheduled Unscheduled Scheduled Unscheduled Scheduled Unscheduled Financial statements Total meetings 9 3 4 – 4 3 2 2 Andrew Allner 9/9 3/3 – – 4/4 3/3 2/2 2/2 David Brown1 9/9 3/3 – – – – 2/2 2/2 Patrick Butcher1,2 3/3 2/2 – – – – – – Keith Down1,3 4/4 – – – – – – – Chairman: 17% Katherine Innes Ker 9/9 3/3 4/4 – 4/4 3/3 2/2 2/2 Shareholder information Independent non-executive Nick Horler4 9/9 2/3 4/4 – 4/4 3/3 2/2 2/2 directors: 50% Executive directors: 33% Adrian Ewer 9/9 3/3 4/4 – 4/4 3/3 2/2 2/2 1. Members of the executive team attended committee meetings by invitation as appropriate which are not included in the above attendance. 2. Patrick Butcher was appointed to the Board in March 2016 and was therefore eligible to attend three scheduled and two unscheduled Board meetings. 3. Keith Down officially resigned from the Board on 6 December 2015 but left the Group on 13 November 2015. He was therefore More information eligible to attend four scheduled Board meetings. on pages 60 and 61 4. Nick Horler missed one unscheduled Board meeting called at short notice due to a previously confirmed commitment.

Responsibility of the Board Contracts, bids and Board Strategy acquisitions Finance Risk and governance • Governing the Group’s vision, values • Setting the long term • Approval of material • Approval of the • Managing a sound and culture strategy, targets and capital projects, Group and Company framework of risk • Approval of the Board’s policies and objectives to deliver value investments, financial statements management and internal procedures including delegated for our customers, acquisitions, and ensuring that the controls and setting the authorities and the terms of reference employees, shareholders franchises and Annual Report is fair, Board’s risk appetite of all committees of the Board and other stakeholders disposals balanced and • Approval of the Group’s • Reviewing the performance of the • Approval of the corporate • Approval of changes understandable key policies, including Board, its committees and individual plan for the Group and to the Group’s • Approval of dividend health and safety, directors on an annual basis individual operating corporate structure policy and corporate social • Determining the remuneration policy companies and constitution recommending responsibility and for the executive directors and • Setting and monitoring key • Approval of all share dividends payable sustainability senior management performance indicators schemes and share • Approval of key • Ongoing review of the • Succession planning and appointments • Oversight and monitoring of buy-back financial policies Group’s corporate to the Board and senior management the corporate plan and programmes including accounting, governance framework against performance strategy fuel hedging, tax and and policies against treasury policies best practice

The Go-Ahead Group plc I www.go-ahead.com 59 Board of directors

N R Andrew Allner, Chairman Appointment: Andrew Allner joined the Board in October 2008 and was appointed as Chairman of the Group in April 2013 Length of service: 7 years and 10 months Independent: On appointment Skills and experience: Significant Board experience including Finance Director, Chief Executive Officer, Non-Executive Director and Chair roles. Experience across a broad range of UK and multinational companies and sectors. Former Partner at PricewaterhouseCoopers and a Fellow of the Institute of Chartered Accountants in England & Wales. Graduate of Oxford University. Non-Executive Director of AZ Electronic Materials SA from 2010 to 2014, of CSR plc from 2008 to 2013 and of Moss Bros Group plc from 2001 to 2005 Committee membership: Nomination Committee Chair and remuneration committee Other directorships and offices: Non-Executive Chairman of Marshalls plc (Chairman of the nomination committee); Senior Independent Director of Northgate plc (Chairman of the audit and risk committee and member of the nomination and remuneration committees) and Non-Executive Chairman of Fox Marble Holdings plc (member of remuneration committee)

N David Brown, Group Chief Executive Appointment: David Brown was appointed to the Board as Deputy Chief Executive on 1 April 2011 before his accession to the post of Group Chief Executive on 3 July 2011 Length of service: 5 years and 5 months Independent: – Skills and experience: Over 33 years’ experience in the industry with particular expertise in the London bus market. Former Managing Director of Surface Transport at Transport for London. Thorough knowledge and understanding of the Group’s business, having been Chief Executive of Go-Ahead’s London bus business from 2003 to 2006 and advisor to the main Board Committee membership: Nomination committee member Other directorships and offices: Non-Executive Director of ATOC Limited (Chair of the remuneration committee) and Director of Rail Delivery Group Limited

Patrick Butcher, Group Chief Financial Officer Appointment: Patrick Butcher was appointed to the Board as Group Chief Financial Officer on 14 March 2016 Length of service: 0 years and 5 months Independent: – Skills and experience: Member of the Institute of Chartered Accountants (South Africa). Over 15 years’ of experience as a finance director at Board level in transport and infrastructure companies. Former Group Finance Director of Network Rail as well as finance director roles at English, Welsh and Scottish Railways (now DB Schenker) and London Underground. Extensive experience working as a management consultant and auditor for Deloitte LLP. Former member of the British Transport Police Authority Committee membership: Not applicable Other directorships and offices: Not applicable

N A R Katherine Innes Ker, Senior Independent Director Appointment: Katherine Innes Ker joined the Board in July 2010 and was appointed as Senior Independent Director in April 2013 Length of service: 6 years and 1 month Independent: Ye s Skills and experience: Former city financial analyst. Extensive executive and non-executive experience in helping to grow successful and dynamic organisations. Held many previous non-executive directorships including St Modwen Properties plc, Victoria plc, Taylor Wimpey plc, Taylor Woodrow plc, The Television Corporation plc, Fibernet plc, Williams Lea plc, Shed Media plc and Gyrus Group plc Committee membership: Remuneration Committee Chair, nomination and audit committee member Other directorships and offices: Non-Executive Chair of The Mortgage Advice Bureau

60 The Go-Ahead Group plc I Annual Report and Accounts 2016 N A R Nick Horler, Non-Executive Director Appointment: Nick Horler joined the Board in November 2011 Length of service: 4 years and 9 months Independent: Ye s Skills and experience: Former Chief Executive Officer of Scottish Power and Managing Director of E. On Retail. Extensive general management experience in UK and USA regulated markets, specialising in sales and marketing. Brings valuable insights to Go-Ahead’s development of social networks and digital marketing to attract new passengers Strategic report Strategic Strategic report Strategic Committee membership: Nomination, audit and remuneration committee member Other directorships and offices: Non-Executive Director of Royal Mail plc (member of the audit and risk and nomination committees; Chair of Alderney Renewable Energy Limited; Chair of Meter Provida Limited and Meter Provida Investments Limited; Non-Executive Director of Thames Water Utilities Limited; Chair of Adler and Allan Limited and Chair of UK Power Reserve Limited

N A R Adrian Ewer, Non-Executive Director Appointment: Adrian Ewer joined the Board in April 2013 GovernanceGovernance Length of service: 3 years and 4 months Independent: Ye s Skills and experience: Became a chartered accountant in 1977 and, as a Fellow of the Institute of Chartered Accountants, has sound recent and relevant financial experience. Former Chief Executive Officer of John Laing plc and associated limited companies. Wealth of experience of major long term contracts. Strong customer focus and flair for strategy and finance. Experience in bidding and operating heavy and light rail franchises as well as rail infrastructure procurement Financial statements Committee membership: Audit Committee Chair, nomination and remuneration committee member Financial statements Other directorships and offices: Not applicable

N A R Carolyn Ferguson, Group Company Secretary Appointment: Carolyn Ferguson was appointed as Group Company Secretary in July 2006. Length of service: 10 years and 2 months Shareholder information Independent: – Shareholder information Skills and experience: A Fellow of the Institute of Chartered Secretaries and Administrators. Qualified and practising coach and mentor. Extensive company secretarial, compliance, governance and pensions experience. Prior to her appointment as Group Company Secretary in July 2006, she was Assistant Company Secretary from 2001. Previous employment included working for Northern Electric, predominantly in the field of pensions. Committee membership: Nomination, audit and remuneration committee secretary Other directorships and offices: Not applicable

Key to committees Directors’ tenure

N Nomination committee 0-2 years: 17% A Audit committee 2-4 years: 17% 4-6 years: 33% R Remuneration committee 6-8 years: 33%

Chairman

Committee Secretary

* The above is as at 2 July 2016, and does not include Keith Down, who left the business on 6 December 2015 following a 4 year and 8 month term of office.

The Go-Ahead Group plc I www.go-ahead.com 61 Corporate governance report

Our new vision, attitudes and beliefs will support value creation for our key stakeholders, as well as the wider society

Leadership

The role of the Board and its committees Go-Ahead is headed by a Board whose members are collectively • Ensuring adequate funding and examining and approving major responsible for the long term success of the Group. Principally, we achieve investment and acquisition opportunities this through: • Leadership and oversight of culture • Developing and monitoring the Group’s strategy, vision, attitude • Formulating key policies and reporting to shareholders and beliefs • Assessing the governance framework of the Group • Monitoring safety standards and championing improvements • Reviewing internal controls and maintaining a robust system of risk • Setting strategic objectives for the operating companies management within the Group • Ensuring that suitable procedures are in place for the planning • Monitoring the performance of the Group of executive, non-executive and senior management succession

Our governance framework on the following page establishes a clear We continued to hold informal meetings and Board dinners during the year division of responsibilities for the Board. The Chairman and Group Chief as these have proved to be an important way of building relationships Executive hold distinctly separate roles and the Board has adopted a written outside the boardroom which in turn have resulted in greater challenge and Statement of Division of Responsibilities between the Chairman and the improved Board dynamics. Additionally, the Chairman and the non-executive Group Chief Executive. directors periodically meet without the executive directors present. During the year, the Chairman also met individually with each director. A full description of the Board’s role, which includes the specific responsibilities reserved to us, is available on our website The agenda for each Board meeting is set by the Chairman in consultation www.go-ahead.com. with the Group Chief Executive and Group Company Secretary. Detailed briefing papers in relation to the business to be conducted at each meeting Our devolved framework are circulated to the Board electronically at least one week before each Day-to-day management of the Group and the implementation of strategies meeting. The executive directors and Group Company Secretary are readily agreed by the Board across the Group and operating companies have been available should any Board member wish to receive additional information. delegated to the executive directors. Board meetings are structured to allow open discussion and debate and the The executive directors meet with senior management in the Group and small size of our Board provides an excellent opportunity for everyone to across our businesses both formally via monthly meetings and less formally contribute. The Chairman ensures that adequate time is available for on a regular basis. We believe that this devolved management structure discussion of all agenda items, in particular strategic issues where more time enables the Group to be managed in a particularly effective way and allows is now spent in Board meetings debating key issues and key financial matters. the right balance between local and wider initiatives to deliver Group A further improvement from last year’s Board evaluation review was to benefits. It also ensures the Board remains well informed about our adopt a clear flagging system for Board papers to guide whether these are operating companies, employees, passengers and stakeholders, enabling it to for decision, for discussion or for information at Board meetings. respond pro actively to the changing dynamics of the business. The areas which the Board focused on in 2015/16, the highlights/progress against these objectives together with the priorities for 2016/17 are set out Board meetings on pages 64 and 65. We hold nine scheduled formal meetings a year, including a separate meeting dedicated to reviewing the Group’s strategy, which all directors attend. During the year, excluding standing items, the Board discussed a number of key areas including strategy, key risks and opportunities, financial performance, leadership, people and culture, governance and stakeholders. Modern Slavery Act 2015 Topics of discussion centred around specific franchising and bidding The Board recognises the importance of the provisions of the Modern opportunities, the political landscape and developments, stakeholder Slavery Act 2015 and the directors aim to ensure that slavery and management and corporate reputation and deep dives into key risk areas human trafficking have no part in the Group’s supply chain. The Group such as cyber security and franchise bid process. This year, we also held three has always been vigilant about employee welfare and aims to be additional meetings where certain topics warranted more time, such as the transparent in its practices. During the year, the Board approved a new challenges faced by GTR and financial forecasts in the corporate plan, Modern Slavery Act Policy and a signed statement can be found on the particularly on the range of outcomes for the GTR contract. Additionally, we Group’s website www.go-ahead.com. All operating companies across met to approve bids or contracts where decisions needed to be made the Group have also approved the Group’s Modern Slavery Act Policy, outside the scheduled meeting timetable. with signed statements also on all individual operating company websites. Further details on the Group’s approach to human rights are set out on page 35.

62 The Go-Ahead Group plc I Annual Report and Accounts 2016 Board and governance framework

Shareholders

Board • Responsible for the overall conduct and culture of the • Ensuring the effectiveness of and reporting on our Group’s business system of corporate governance

• Ensuring the long term sustainable success of the Group • Accountable to stakeholders and shareholders report Strategic • Setting strategy and direction

More information A schedule of matters reserved for the Board can be on page 62 found on our website www.go-ahead.com

Group Chairman Group Chief Group Chief Senior Independent Non-Executive Company Executive Financial Officer Director Directors Secretary Leads the Board and is Governance responsible for its Leads the business and Provides strategic Acts as a sounding Constructively Acts as an effectiveness is responsible for and financial guidance board for the challenge and help independent executing the strategy to ensure that the Chairman and develop the Group’s Board advisor, Group’s financial intermediary for other strategy with responsibility commitments directors where for corporate are met necessary governance and best practice,

good information Financial statements flows and ensuring that the Audit committee Nomination committee Remuneration committee decisions of the • Provides assurance to the Board over • Evaluates and makes • Sets the executive directors’ Board are the Group’s financial statements recommendations regarding Board remuneration policy to support implemented and committee composition, strategy • Reviews the activity and performance succession planning and diversity of the internal and external auditors • Sets performance targets and reviews

• Oversees the Group’s leadership and outcomes in accordance with policy Shareholder information • Reviews the integrity, adequacy and talent framework, succession planning effectiveness of the Group’s system • Oversees the reward framework for and Group-wide diversity initiatives of internal control including the risk senior managers within the Group management framework and related compliance activities

More information More information More information on page 71-79 on page 80-83 on page 84-103

Operating company boards Rail and bus steering Group executive team • Operated as autonomous business groups and forums • Comprises senior managers units by local senior management Cross-business steering groups which responsible for the key centralised who know their markets well comprise the managing directors in Group functions • Local senior management report each operating company meet with • Meets monthly with the executive directly on day-to-day management the executive directors on a regular directors to review the business and issues to the executive directors basis to: identify, execute and track synergies who in turn appraise the Board • Explore and identify new which can then be cascaded through opportunities and initiatives the cross-business groups and forums • Share knowledge, experience and best practice across operations • Functions include, but are not limited to the areas of IT, procurement, bus These groups are supported by the and rail business development cross-business forums which include, and marketing but are not limited to, health and safety, engineering, HR and diversity forums.

The Go-Ahead Group plc I www.go-ahead.com 63 Corporate governance report continued

Board Board objectives set for 2015/16 Highlights/progress made against 2015/16 objectives Priorities for 2016/17 • Implement the external Board evaluation • Good progress made implementing the • Implement the actions from the internal review recommendations recommendations from the external Board Board evaluation evaluation review with improved Board • Further align succession planning and leadership • Drive culture change and ensure all strategic effectiveness as a result development with strategic planning decisions are underpinned by the Group’s new • Annual leadership review completed, vision, attitudes and beliefs • Continue to strengthen talent strategy in the including senior management succession context of culture, values and • Continue to strengthen diversity initiatives and planning oversight behavioural framework extend the work across the rail division • Non-executive director succession review • Continue to build upon and develop • Continue supporting the new Group Chief completed with agreed rotation points diversity initiatives Financial Officer’s integration during the • Further progress with implementing a range of remainder of his first year with the Group • Appoint a replacement Group Finance Director diversity initiatives under the direction of the and facilitate his/her induction to the Group • Remain informed and abreast with best practice new diversity steering group processes and reporting • Patrick Butcher appointed as Group Chief Financial Officer, with his induction completed Strategy Board objectives set for 2015/16 Highlights/progress made against 2015/16 objectives Priorities for 2016/17 • Review of organisational structure to • Organisational review completed, including • Review and monitor delivery of the Group’s deliver strategy succession, leadership and talent planning to strategic priorities support strategy • Continue to develop framework for • Understand the internal and external factors, development and diversification opportunities • Approach to strategy discussions and including risks, that support the delivery of the monitoring strengthened to develop and Group’s strategic priorities • Further enhance collaboration and support framework partnership working • Review approach to succession planning, • Improved collaboration and partnership leadership development and talent management • Improve focus in response to rail performance working, supported by the new vision, attitudes to ensure alignment with strategic planning and and customer experience and beliefs, with their customer centric focus corporate culture • Increased focus on stakeholder management • Focus on improving performance and customer and corporate reputation at Board meetings, services at GTR with regular updates from senior management • Ensure our strategy supports delivering value for • Executive remuneration closely aligned our customers, employees, shareholders, to rail performance and customer stakeholders and the wider society experience priorities • Effective roll-out of a ‘lean engineering’ approach across the bus division to reduce costs and improve productivity Contracts, bids and acquisitions Board objectives set for 2015/16 Highlights/progress made against 2015/16 objectives Priorities for 2016/17 • Consider further contract opportunities in the • Successful win of two German rail contracts • Bid for the West Midlands franchise German regional rail market • Successful win of 25 route bus contract • Continue to grow the business in Germany • Bid for second tranche of work in the in Singapore through further contract wins Singaporean bus market • London Midland awarded a new contract • Bid for third tranche of work for the • Direct award contract terms for enabling it to retain the West Midlands franchise Singaporean bus market London Midland until October 2017 • Continue to ensure growth within the bus • Continue to undertake careful analysis to • Ongoing research and due-diligence to consider division and prepare for the threats and establish other opportunities which best further opportunities opportunities of bus franchising complement our portfolio, match our risk • Work with stakeholders on the potential appetite and offer attractive returns for structure of a Southeastern bid in 2018 our shareholders • Continue to undertake careful analysis to establish other opportunities which best complement our portfolio, match our risk appetite and offer attractive returns for our shareholders

64 The Go-Ahead Group plc I Annual Report and Accounts 2016 Finance Board objectives set for 2015/16 Highlights/progress made against 2015/16 objectives Priorities for 2016/17 • Continue to monitor progressive dividend policy • Reviewed the Group’s dividend policy, including • Continue refinement of dividend policy and capital allocation and return opportunities return to shareholders where appropriate • Maintain focus on strong financial discipline and best practice policies and processes • Reviewed key financial policies, including • Continue to review fuel hedging policy and delegated authorities and fuel hedging levels secured • Execute the agreed transition plan for the change of statutory auditor • Managed the transition of external auditor from • Re-finance the corporate bond with an

Ernst & Young LLP to Deloitte LLP appropriate instrument report Strategic • Respond to changes in the external regulatory environment to ensure best practice compliance • New viability statement in this year’s Annual • Maintain investment grade rating and reporting Report, with processes now in place to support this assessment annually • Secured a bridging facility to provide a backstop option for repayment of the £200m corporate bond Risk and governance Governance Board objectives set for 2015/16 Highlights/progress made against 2015/16 objectives Priorities for 2016/17 • Implement the changes required to comply with • Review of processes to ensure full compliance • Continue embedding the recent risk the updated 2014 Code including risk process with the 2014 Code management and internal control improvements and appetite and review effectiveness • Independent review of risk framework, with • Continue to review and strengthen cyber enhancements made to support the assessment • Schedule ‘deep dive’ reviews into key risk areas security policies and processes of risk and risk appetite and continue to develop risk appetite discussions and assessment • More in-depth review of information and cyber Financial statements security, including review of risk management, • Implement the recommendations of controls, training and action plans professional advisors to continue to strengthen and enhance IT Systems across the Group • New Board approved Enterprise Information Security Charter • Review internal management of compliance and internal audit workstreams • Internal audit review of IT security systems • Participate and consult on developments in

governance and best practice Shareholder information

New priority for 2016/17: Culture As explained on page 33, during the year we introduced a new Group vision with supporting attitudes and beliefs. The Board believes that strong governance and setting the correct ‘tone from the top’ underpins a healthy culture, which in turn both protects and generates long term value for the business. Our new vision is ‘a world where every journey is taken care of’. It is future focused, aspirational and puts customers at the heart of our business. It sets out where we want to be. The Board has played an important role in leading this cultural change and has been mindful of the report on ‘corporate culture and the role of board’ by the Financial Reporting Council (FRC). The Board has a key role to play in influencing and shaping culture change as we embed it throughout the business and below are just a few of the Board’s key priorities on culture over the year ahead: • Lead by example and ensure good standards of boardroom behaviour • Ensure the Group’s strategy and business model are aligned to our new values • Ensure Board behaviour and decision making is underpinned by our new values • Agree the indicators and measures to evaluate and report on culture change • Engage with shareholders, employees and other stakeholders • Oversee the embedding and integration of the Group’s values across the business • Ensure we remain at the forefront of good governance, consult and engage as appropriate • Dedicate time and resource to culture and the role of the Board

The Go-Ahead Group plc I www.go-ahead.com 65 Corporate governance report continued

Effectiveness Induction All new directors undertake a full induction programme either shortly before, or upon joining the Board. This is a personalised induction Board composition programme tailored specifically to take into account their previous On 2 July 2016, the Board comprised the Chairman, three non‑executive experience and background and is targeted to particular areas of focus. directors and two executive directors. Patrick Butcher became Group Chief It includes, amongst other things, the business of the Group; the legal and Financial Officer on 14 March 2016 after Keith Down stepped down as regulatory responsibilities of directors; meetings and briefings from members Group Finance Director on 6 December 2015. of the Board; opportunities to meet with local senior management at The biographies of all members of the Board, outlining the experience they operating companies; and opportunities to meet with key advisors. bring to their roles, are set out on pages 60 and 61. Ongoing development Election and re-election to the Board The Chairman regularly encourages the non-executive directors to All directors have submitted themselves for re-election at the 2016 Annual continually update their skills, knowledge and ongoing familiarity with the General Meeting with the exception of Patrick Butcher, Group Chief Group in order to competently carry out their responsibilities. Financial Officer, who will offer himself for election for the first time in This is achieved as follows: accordance with the Group’s articles of association. • Regular presentations at Board meetings from senior management on The nomination committee confirmed to the Board that the contributions matters of importance. Examples during the year included presentations made by the directors continued to be effective, with the non-executive on key areas of risk, rail franchising opportunities and bidding, overseas rail directors exercising strong and independent oversight. The nomination and bus strategy and matters of operational significance committee recommended that the Board should support the re-election of all directors. Full details of the review of the Board’s composition, the contribution of individual directors and time commitments can be found on pages 67 to 69. Patrick Butcher’s induction “My induction programme enabled me to quickly develop my knowledge of all parts of the business and to gain an understanding of the interaction between the Group’s centralised functions and the devolved, autonomous operating companies. Meeting shareholders and other stakeholders was an important part of understanding the link to the strategic priorities of the Group and the timing of my appointment was such that I was able to contribute to the new vision, attitudes and beliefs work before it was rolled out across the Group. I believe that the positive cultural changes that these will evoke, underpinned by the customer centric approach, will differentiate us from our competitors and will support the achievement of our strategic goals.” Patrick Butcher, Group Chief Financial Officer

Expertise Overview of the Group Chief Financial Over 15 years’ experience as a finance director at Board level in Officer’s induction programme transport and infrastructure companies • One-to-one meetings with members of the Board, including the Group Company Secretary • One-to-one meetings with the Group executive team responsible for Focus areas: the Group’s centralised functions • Group structure, including the devolved management approach • Meeting with the local senior management teams in each of the Group’s and governance framework operating companies, in addition to colleagues within the businesses • Understanding the key strategic priorities and how they add value • Meeting independently with both the internal and external auditors to the Group and the key advisors to the Group and the Board • Understanding the key risks and the internal controls in place to • Meeting with key financial stakeholders mitigate the risks • Training on his duties as a director, listed company regulations • Group culture including embedding the new vision, attitudes and beliefs and the Group’s governance framework and policies • Building relationships with key colleagues across the Group, stakeholders • Reviewing investor feedback reports and introductory meetings and advisors with a number of major shareholders

66 The Go-Ahead Group plc I Annual Report and Accounts 2016 • The non-executive directors have a planned programme of operating The Board is confident that all of its members have the knowledge, ability company visits during the year, in addition to attending the Group’s annual and experience to perform the functions required of a director of a management conference listed company. • Regular updates on the Group’s businesses as well as updates on corporate governance, sustainability and legislative/regulatory issues. Board effectiveness review Updates are by way of written briefings from the Group Company Following the external review of the Board last year, it was agreed that an Secretary, presentations from management and presentations from internal review, facilitated by the Group Company Secretary, would be external advisors. During the year under review updates again focused on undertaken this year. the revisions to the 2014 Code, the new Market Abuse Regulations, the The key objective of the review, which was undertaken from April to August Modern Slavery Act and boardroom best practice report Strategic 2016, was to build upon the improvements made after last year’s external • Regular updates on political and market related issues as well as evaluation and to identify if there were any further changes that may compliance training. During the year this included the Bus Sevices Bill and enhance the Board’s effectiveness. the referendum to exit the European Union Ahead of meeting individually with each Board member, the Group Equally, as part of their annual performance evaluation, directors are given Company Secretary distributed a discussion document which had been the opportunity to discuss any additional own training and development agreed with the Chairman and included a copy of the previous year’s needs. Directors are expected to take responsibility for identifying additional evaluation report and action plan. Following the individual meetings, the training needs and to take steps to ensure each is adequately informed Group Company Secretary briefed the Chairman on her findings before a about the Group and their responsibilities as a director. final report was sent to all Board members ahead of discussion at the next Governance Board meeting.

Progress against actions Good progress was made against the recommendations arising from the previous year’s external evaluation: Financial statements

Recommendations from 2014/15 Board evaluation Actions taken in 2015/16 Stakeholder management and corporate reputation The Board now discusses stakeholder management and corporate reputation at each Consider how to maximise the non-executive directors’ Board meeting, with the Group Chief Executive providing a comprehensive update. participation in stakeholder management There were also presentations from senior management across the Group who were at the forefront of stakeholder management and corporate reputation. The Board felt that there was now a good balance between presentations and

Strategy development/iteration Shareholder information Consider the timing and format of more regular strategy discussions on the annual strategy day, with much more free-flow discussion. Strategic updates discussions were also becoming more ‘business as usual’ as part of routine meetings. The mid-year strategy review had become a regular feature in the Board’s calendar, with the executive directors providing a more formal update on each of the key strategic priorities. Organisation and Group structure During the year, the Board had discussed and debated the current organisation Review Group and organisation structure, and succession structure, in addition to considering succession and talent planning in the context of and talent planning to further support Group strategic supporting the Group’s strategic objectives. Regular updates were now provided by the objectives Group HR Director, with more detail provided for critical key roles and individuals. Further details can be found in the nomination committee report on pages 80-83. Top down consideration of risk During the year, the Group’s internal auditor, PricewaterhouseCoopers (PwC), was Consider new approaches to the assessment of risk asked to assess the Group’s risk management approach, with a focus on the top down including how the Group improves its articulation of risk management process. A number of enhancements were subsequently made to the risk appetite risk management which are explained in more detail on page 77. Non-executive director rotation and succession Led by the Chairman, a comprehensive review of non-executive director rotation and Plan for the next Board refreshment and crystallising succession had taken place during the year, which had included one-to-one discussions non-executive director rotation points in light of with all non-executive directors. A plan and timeline had subsequently been agreed, future needs including all non-executive director crystallisation points, and this would now regularly be reviewed at nomination committee meetings. Further details can be found in the nomination committee report on pages 80-83. Executive team development and diversity The Board welcomed the more detailed information now provided as part of the Develop internal and external candidate pools from Group HR Director’s regular updates and which enabled them to understand how the non-traditional sources executive team were being developed and how they were supporting succession strength. With the Group’s new diversity steering group now firmly established, regular updates would now also be received on the Group’s diversity and inclusion initiatives. Further information can be found on page 83.

The Go-Ahead Group plc I www.go-ahead.com 67 Corporate governance report continued

Current themes and boardroom best practice In addition to reviewing progress against the actions from the previous year’s review, the one-to-one meetings with the Group Company Secretary also drew upon the current themes for boards and boardroom best practice in the context of Go-Ahead, including each individual non-executive director’s own experience:

The view was that successfully embedding the Group’s new vision, attitudes and beliefs, with their underpinning customer Leadership centric view, would be a critical element in the Group’s long term sustainable success. There was an acknowledgement that and culture work to embed culture change would present both opportunity and risk and the Board embraced the leadership role they would play and their accountability for the governance of culture.

The Board welcomed the changes and initiatives underway to improve gender diversity below Board level, with the planned regular diversity steering group updates enabling the Board to be more informed about the progress being made and the industry challenges. While the initial focus had been on improving gender diversity in the bus division, it would be important to Diversity consider all areas of diversity across the entire business with the ongoing work on vision, attitudes and beliefs helping to support and influence behaviours.

The Board felt that they had a good understanding of the risks to the business, with the work undertaken with PwC providing the assurance that risk management within the Group was effective in practice. The Board welcomed the now regular ‘deep Risk dives’ into key risk areas which during the year had included reputation, franchise bidding process, disruptive technology and cyber security.

The Board understood the importance of having a solid pipeline of high quality internal candidates who could be ready for Succession senior management and Board positions in a range of situations. The regular updates now received from the Group HR planning Director enabled the Board to review internal talent and development practices in support of succession planning. It would be important that this focus continued, with processes aligned to the new vision, attitudes and beliefs.

Board review highlights Opportunities to increase Board effectiveness Overall, the internal review this year concluded that the Board continued to The Board continually strives to improve its effectiveness. There were a function well with the dynamics, culture and effectiveness all continuing to number of opportunities identified as part of this year’s internal evaluation improve. The small size of the Board was cited as a positive by all, primarily which could serve to further enhance the effectiveness of the Board. as it provided the opportunity for everyone to contribute. Discussions were These included: supportive, with open dialogue and constructive challenge, and individual members of the Board remained effective in their ability to discharge their • Culture: A detailed review of the Board’s role in the governance and duties and responsibilities. oversight of culture, with the Board’s dual leadership role of accountability and assurance The review also found Board information to be comprehensive and received • Succession planning (executive): Increased focus on alignment to strategic in a timely manner. The role of the Chairman, and the formal and informal planning and corporate culture as a means of selecting the individuals best initiatives which were now a regular feature of the Board’s operation, suited to the Group’s future direction continued to be welcomed and it was this building of trust and the fostering of good relationships both inside and outside the boardroom which had • Succession planning (non-executive): To support the plan and timeline served Board discussions well during the year. now agreed, assess existing skill set of the Board and undertake gap analysis of Board requirements to achieve a better link to strategy and There was general satisfaction that audit, nomination and remuneration Group culture committees were functioning well. • Risk: Embedding the recent improvements made to risk management processes during the year to ensure the Group remains at the forefront of effective risk management and best practice. Focusing on key risk areas, such as reputational risk, and the actions taken to mitigate such risks Full details of the actions taken in response to these opportunities to increase Board effectiveness, including progress against them, will be provided in next year’s annual report.

68 The Go-Ahead Group plc I Annual Report and Accounts 2016 Individual director effectiveness Relations with stakeholders In addition to the evaluation of the Board and its committees, the Group One of the Board’s key priorities is to build relationships with all of our Company Secretary also facilitated ‘peer to peer’ director assessments which stakeholders through communication, collaboration and partnership involved each non-executive director completing a self-assessment working. We recognise that in certain parts of our business there are questionnaire and a cross-assessment questionnaire on each other. challenges, which we are working hard to address. We strongly believe The questionnaires were designed to gain insight into the directors’ that these challenges are best met by working together. perception and views of the nature of the relationship between Board members and whether the Board processes, support and interactions with its committees were appropriate. Views were also sought on the administrative support for the Board and whether sufficient information report Strategic and time were devoted to key issues and strategic matters. Executive directors were not required to complete self-assessment Our people Communities questionnaires or have cross-assessment questionnaires completed on them High levels of employee Our businesses are part of the given that this process had taken place at their one-to-one appraisals. The engagement, commitment and job local communities in which they executive directors were required to complete a cross-assessment satisfaction contribute directly to operate. Our aim is to play a questionnaire on each non-executive director. the success of Go-Ahead. The constructive role in the villages, The Group Company Secretary compiled the information from the majority of our people are towns and cities we serve, questionnaires into a report to ensure feedback from each director members of trade unions and working closely with local Governance remained anonymous. The Chairman met with each director to discuss our local teams look to foster community groups. findings from the questionnaires. As in previous years, the Senior good relationships with Independent Director led the process of evaluating the performance of the their representatives. Chairman, in consultation with the non-executive directors and with input from the executive directors. Information and support

Board procedures manual Financial statements The Board is supplied with high-quality information, presented in a form Investors Governments and appropriate to enhance Board effectiveness. A comprehensive Board As a publicly listed company we local authorities procedures manual is maintained which includes formal procedures for the provide open and transparent Policy and regulatory changes working of the Board and its committees, delegated authorities, the timely information which enables affect our bus and rail business. provision of appropriate information and the duties and responsibilities of informed investment decisions to Working closely with both central directors, including standards of conduct and compliance. This manual is be made. Providing information so and local government enables us regularly updated to ensure it is consistent with current best practice. that investors can make informed to provide input into new policies decisions is a priority for us. and ensure we receive regular Shareholder information Group Company Secretary Feedback from our shareholders feedback on our performance. The Group Company Secretary is available to all directors to provide advice forms part of strategic discussions and is responsible for ensuring that all Board procedures are complied with in the boardroom. and that Board and committee papers are circulated to all directors by electronic means ensuring fast, timely and secure provision of information. The Group Company Secretary reports to the Chairman in her role as secretary to the Board and its committees. She reports to the Group Chief Financial Officer on all other company secretariat matters, including the management of the Group’s bus pension arrangements. Her biography can be found on page 61. Strategic partners Customers and suppliers We need to know how we are Independent advice Professional relationships with performing and our passengers’ All directors may take independent professional advice, at the Group’s core suppliers and strategic perception of our services so we expense, if they believe it to be necessary for the proper discharge of their partners help to ensure and can deliver change and duties as director. support efficient delivery of our improvements. We understand passenger transport services. We our local markets and strive to Our key stakeholders have an ethical procurement meet our passengers’ needs, Collaboration with stakeholders and partnership-working is fundamental in policy demonstrating our values including accessibility. Our new our approach and the long term sustainability of our business. extend to our supply chain and vision, attitudes and beliefs have a As a leading provider of transport in the UK, we face a wide range of those who do business with us. customer centric focus. complex issues. Some of those issues are within our control, some we seek to influence and others are more challenging to manage and require strong and collaborative relationships with our stakeholders, which can be seen to give us a positive advantage in our market. For more about our relationships with our stakeholders, Our customers, people, local communities, investors, both international and visit: www.go-ahead.com local governments, strategic partners and suppliers are our key stakeholders and all have a material impact on the successful delivery of our strategic targets.

The Go-Ahead Group plc I www.go-ahead.com 69 Corporate governance report continued

Relations with shareholders Our investor base is largely UK focused and as such we focus our IR Go-Ahead’s Board has always been committed to reporting in a fair, programme in the UK. Following our full and half year results we hold balanced and understandable manner and places great importance on investor roadshows in London and Edinburgh for institutional investors. We transparent, relevant and timely communication with shareholders. also typically attend the annual conferences held by our corporate brokers. Throughout the year, we maintained open and frequent dialogue with In addition to these programmed events, we respond to meeting requests investors, providing updates on strategy, objectives and governance as well from institutional and private holders throughout the year. While key as listening to and responding to questions. shareholder engagement activities are undertaken by the executive directors, overall responsibility for ensuring that there is regular and effective dialogue The Group’s investor relations (IR) programme, managed by the Group IR with investors rests with the Chairman. The Chairman held a number of team, includes regular dialogue between the executive directors and current meetings with shareholders during the year and is available to meet and potential shareholders through group and one to one meetings, investors and appreciates the opportunity to do so. The Senior Independent presentations and conferences. The executive team are also in regular Director and committee chairs are also available to meet key investors on contact with sell-side analysts and meet with broker sales teams to request and the Group Corporate Communications Director and Head of communicate the Group’s key message to the people dealing with investors IR are available to provide updates on the Group’s sustainability and broader every day. We also communicate with the investment community through governance strategies to socially responsible investors. regular news releases and trading updates. Financial results and other material news releases are issued via the London Stock Exchange as well as The IR team provides the Board with regular reports and updates, including being published on our corporate website www.go-ahead.com. analysts’ reviews, analysis of the shareholder register and shareholder feedback. Understanding our shareholders’ views is important to us. The IR section of our website provides a wealth of information including a Following our full and half year roadshows our corporate advisors gather dedicated results centre, latest news, access to reports, presentations and detailed feedback from institutional shareholders which is presented to the other useful documents, as well as share price, market capital and other Board. This forms an important part of the Board’s strategic discussions and shareholder information. Investors and other interested parties can subscribe also assists the IR team in improving the quality of communications. to receive news through email updates by registering their details on our website. Annual General Meeting (AGM) Our website is fully responsive, enabling shareholders to access information In addition to individual meetings, the principal communication with all on the move through a range of mobile devices. shareholders is through the Annual Report and the AGM. The AGM is attended by all directors and all shareholders are invited and encouraged to We continue to use other channels to engage with a wider audience attend as it provides an opportunity to develop their understanding of the through our social media accounts. We also have a range of award-winning Group and ask questions. There is also the opportunity to meet informally social media activities in place across our bus and rail companies, updating with the directors before and after the meeting. passengers with realtime service information. Combined, Go-Ahead and its companies are reaching 250,000 people on Twitter and 140,000 on Full details of the business to be discussed at the Group’s next AGM on Facebook. During the year we were awarded the most effective Thursday 3 November 2016 can be found in the Notice of Meeting. This is communication of overall investment proposition and best use of digital sent to registered shareholders in advance of the meeting and will also be communications within the FTSE 250 category, at the Investor Relations available on our website at www.go-ahead.com. Society Awards 2015 for the second year running. More recently, we have been shortlisted for the best printed Annual Report in the 2016 Corporate & Financial Awards.

70 The Go-Ahead Group plc I Annual Report and Accounts 2016 Audit committee report

Integrity of reporting We review the external audit findings to support the accuracy and completeness of reporting disclosures. During the year this included ensuring consistency with the business model and strategy, providing assurance to the Board on the fair, balanced and understandable statement and assessing the new long term viability statement, more details of which are included in this report. In conjunction with the external auditor, the committee also focused on a number of key areas where significant judgements had been applied which Strategic report Strategic Strategic report Strategic could have a material impact on the financial statements. The committee discussed the assessment of the impact of the key judgements and the level of management challenge, particularly around provisions and accruals in the train operating companies. As explained on page 120 the rail industry operates through a number of complex contractual arrangements between the DfT, Network Rail and our train operating companies. Given the difficulties that the Group has experienced with GTR, the committee has focused on the key judgements exercised by management over the “During the year, we enhanced our expected outcomes of negotiations with the DfT and Network Rail on the

GTR franchise. The committee is satisfied that the amounts recognised in GovernanceGovernance risk management and internal the accounts are fair estimates of the likely outcomes. More details on the significant accounting judgements and key sources of estimation uncertainty control framework” can be found on page 75.

Dear Shareholder New external auditor Following a competitive tender process in 2014, the proposal to appoint Deloitte LLP as external auditor received shareholder approval at the AGM Financial statements As Audit Committee Chair, I am pleased to present the audit committee’s Financial statements report for the year ended 2 July 2016. on 22 October 2015. Chris Powell was appointed as the lead engagement partner from the same date. We take very seriously our governance requirements and the support we provide to the Board. As a result of regulatory change in recent years, the Management and Deloitte LLP have worked collaboratively to ensure a role of the audit committee has significantly expanded and it remains one of thorough induction process has been undertaken. The induction has enabled our key priorities to monitor and implement changes in the external Deloitte to gain a deep understanding of the business, its systems and regulatory environment and best practice. The committee has welcomed the processes. On behalf of the Board, I thank Ernst and Young LLP for their changes to the UK Corporate Governance Code (the 2014 Code) and the long-standing contribution to the Group over the years. Shareholder information Shareholder information FRC’s Guidance on Risk Management, Internal Control and Related Financial Our remit also included ensuring that the scope of the external audit and and Business Reporting published in September 2014, which applies to the fee were appropriate and the effectiveness of the external audit was Group for the first time this year. Our aim is to provide confidence in the monitored, which was particularly important this year with the transition integrity of the Group’s processes and procedures in relation to internal from Ernst & Young LLP to Deloitte LLP. control, risk management and financial reporting. Looking forward to the next 12 months, the committee will continue to On the following page, we set out the committee’s objectives for 2015/16 focus on the audit, assurance and risk processes within the business. and the progress we have made against these objectives. We have also focused on a number of key areas during the year which are explained in Further details of the committee’s activities during the financial year ended more detail throughout this report. 2 July 2016 can be found on the pages which follow.

Internal controls and risk The committee places great emphasis over the need to maintain sound internal control processes across the Group. In particular, we will look to strengthen our controls over IT processes. In addition to reviewing the Adrian Ewer, internal control and risk management systems in place, we commissioned an independent review of the effectiveness of our framework. This review was Audit Committee Chair a robust assessment of the effectiveness of our existing risk management 8 September 2016 and internal control framework and how well we monitor principal risks. As a result of this review, we made a number of enhancements which strengthen our approach to risk management and supports compliance with the new provisions of the 2014 Code and the spirit of the 2014 Code’s guidance.

The Go-Ahead Group plc I www.go-ahead.com 71 Audit committee report at a glance

Audit committee objectives Highlights/progress made Priorities for set for 2015/16 against 2015/16 objectives 2016/17 • Continue to monitor changes in the external • Reviewed the significant financial judgements • Assess the effectiveness of the enhancements regulatory environment to make sure that we made during the year and in the preparation made to systems of risk management and continue to have appropriate financial, of the 2015/16 Annual Report and internal control processes during 2015/16 compliance and internal controls in place Financial statements • Continual assessment and improvement of cyber • Support the transition of the external auditor • Provided assurance to the Board on whether security with focus on ensuring IT controls from Ernst & Young LLP to Deloitte LLP and the 2015/16 Annual Report and Financial remain robust and dynamic facilitate the induction of Deloitte LLP statements, taken as a whole, are fair, balanced • Implement the recommendations of professional • Continue to ensure the committee is exercising and understandable advisors to continue to strengthen and enhance its assurance oversight in the best possible way • Managed the independent review of the IT systems across the Group • Support the Board in responding to the risk management and internal control • Monitor changes in the external regulatory amendments to the updated 2014 Code, framework, and the implementation of a environment and best practice including assessment of risk appetite and the number of enhancements • Ensure the committee is exercising its assurance statement on the Group’s viability • Considered the longer term assessment of the oversight role in the best possible way • Review of scope and delivery of internal audit viability of the Group, including the financial • Carry out an assessment of the external and operational position of the Group and auditor’s effectiveness the potential impact of the principal risks • Review of scope and delivery of internal audit and uncertainties and monitor progress • Oversaw the handover process from external • Continue to oversee the significant auditor Ernst & Young LLP to Deloitte LLP financial judgements • Reviewed the effectiveness of the external audit process and recommendation on reappointment

More information on pages 73 to 79

Audit committee membership Committee at work – external auditor transition Adrian Ewer Committee Chair Deloitte LLP was appointed as the Group’s external auditor at the 2015 AGM following a rigorous selection process. This involved six firms submitting a response to Katherine Innes Ker Senior a pre-qualification questionnaire with three being shortlisted to provide presentations Independent Director to an audit tender panel (the AT Panel) comprising the Audit Committee Chair, the Nick Horler Independent former Group Finance Director and the Group Financial Controller. The Board Non‑Executive Director approved the AT Panel’s recommendation to appoint Deloitte LLP due to their extensive experience, particularly in a listed environment, and their knowledge and experience of the transport industry, particularly the rail and bus sectors. Carolyn Ferguson attends the meetings in her capacity as Group Company Secretary Since then, the audit committee has overseen the transition of the external audit work to Deloitte LLP through a number of activities: Attendance • An extensive handover with the former auditor, Ernst & Young LLP, was undertaken Katherine Innes Ker to ensure a smooth transition took place • Deloitte LLP underwent a thorough induction process to enhance their understanding of our business, including meetings with our executive directors and Nick Horler senior managers across the business • Deloitte LLP carried out a number of site visits across our operating companies • Deloitte LLP created a detailed audit plan, setting out the scope and objectives of Adrian Ewer the audit together with an overview of the planned approach, an assessment of the Group’s risk and controls, and proposed areas of audit focus • Deloitte LLP has worked closely with the Group to consider key accounting matters that arose throughout the year • Deloitte LLP completed a review of the interim results and carried out some advanced audit procedures on the period 10 results, and provided preliminary findings on the key financial and internal control matters

72 The Go-Ahead Group plc I Annual Report and Accounts 2016 Committee purpose and responsibilities Financial reporting The purpose of the committee is to monitor and review the Group’s The primary role of the committee in relation to financial reporting is to financial reporting arrangements, the effectiveness of its internal controls and review, with both management and the external auditors, the risk management framework, the internal and external audit processes and appropriateness of the half year and annual financial statements the Group’s whistleblowing procedures. The committee reports to the concentrating on, amongst other matters: Board on its activities and makes recommendations, all of which have been • The quality and acceptability of accounting policies and practices accepted during the year. • Material areas in which significant judgements have been applied or where Committee composition, skills and experience significant issues have been discussed with the external auditor The membership of the committee, which comprises three independent • The clarity of the disclosures and compliance with financial reporting report Strategic non-executive directors, has been selected with the aim of providing the standards and relevant financial and governance reporting requirements, range of financial and commercial expertise necessary to meet its including the 2014 Code responsibilities in a robust and independent manner. Adrian Ewer is a Fellow • Any correspondence from regulators in relation to the Group’s of the Institute of Chartered Accountants and has significant financial financial reporting experience in the UK listed environment, enabling him to fulfil his role as • An assessment of whether the Annual Report (the Report), taken as a Audit Committee Chair. whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and How the committee operates performance, business model and strategy. This assessment forms the basis

The audit committee usually meets at least four times a year, excluding of the advice given to the Board to assist in making the statement Governance meetings held to review its effectiveness as part of the annual performance required by the 2014 Code evaluation. Members’ individual attendance at committee meetings for the • Reviewing the assumptions and providing assurance to support the long year under review can be found on page 59. term viability statement Meetings of the committee generally take place immediately prior to a Board meeting in order to maximise the effectiveness of collaborating with Fair, balanced and understandable the Board. Meetings are attended by the independent non-executive At the request of the Board, the audit committee has considered whether, in directors. By invitation, the Chairman, Group Chief Executive, Group Chief its opinion, the 2015/16 Annual Report and Financial Statements are fair, Financial statements Financial Officer and internal and external auditors regularly attend meetings. balanced and understandable, and whether it provides the information In order to ensure momentum is sustained and matters progressed, the necessary for shareholders to assess the Group’s position, performance, Audit Committee Chair holds pre-audit committee meetings with key business model and strategy. advisors between main committee meetings. The steps that the committee followed before arriving at their At least once a year, the non-executive directors hold separate meetings recommendation were as follows: with the external and internal auditors, without the executive directors being present. Collaborative process A collaborative approach is taken to creating the Report and Financial Shareholder information Terms of reference Statements which involves direct input from key report contributors, including the Board and committee, throughout the process and includes The committee’s terms of reference are reviewed annually and the following: approved by the Board. They are available on our corporate website at www.go-ahead.com or upon request from the Group Company Secretary. • Early planning and implementation of timetable with experienced project managers for each section During the year, the committee reviewed the recently revised UK Corporate Governance Code 2016 and the associated Guidance on Audit Committees • Briefings on the requirements of the fair, balanced and understandable to reflect the forthcoming UK legislation on audit committees and auditor requirements for all involved; this includes the Group corporate appointments. The committee’s terms of reference and policy on non-audit communications, company secretariat and legal teams as well as Group services have been updated accordingly to ensure compliance. finance to validate the appropriateness of material disclosed. The inclusion of these various departments, with input from operating divisions as Effectiveness of the audit committee appropriate, ensures the balance, completeness and accuracy of the Report During the year, the committee’s performance was reviewed by the Group Company Secretary as part of the internal Board evaluation. The review • Validation of data and information included in the Report undertaken found the committee to be effective and well run, with the committee both internally and by the external auditor embracing the changes arising from the 2014 Code. The resultant • A series of key proof dates for comprehensive review across all sections enhancements to the processes supporting the assessment of risk and that aim to ensure consistency and accuracy internal controls, risk appetite and the statement on the Group’s viability • Early drafts of the Report available to the audit committee to ensure had added value, in addition to ensuring that the Group remained abreast timely review and allow comments to be incorporated of best practice. • Audit committee recommendation to the Board

The Go-Ahead Group plc I www.go-ahead.com 73 Audit committee report continued

In considering whether the Annual Report is fair, balanced and External audit understandable, the committee reflects upon the information it has The committee has primary responsibility for overseeing the relationship received and discussions throughout the year. The committee considers with, and performance of, the external auditor. This includes making the a number of key questions which include: recommendation on the appointment, reappointment and removal of the external auditor, assessing their independence on an ongoing basis and Is the Report fair? negotiating the audit fee. • Is the whole story presented and has equal weight been given to all messages? Tenure • Is the narrative reporting consistent with the financial reporting, with key Deloitte LLP were appointed as the Group’s external auditor in October messages reflected in both? 2015 following an audit tender and, in accordance with the 2014 Code, the • Is the description of the business, principal risks and uncertainties, strategy Group will be required to put the external audit contract out to tender by and objectives in the report consistent with the Board’s understanding? 2025. In addition, Deloitte LLP will be required to rotate the audit partner responsible for the Group audit every five years and, as a result, the current • Are KPIs disclosed at an appropriate level based on the lead audit partner will be required to change in 2021. financial reporting? The committee continues to review the auditor appointment and the need Is the Report balanced? to tender the audit, ensuring the Group’s compliance with the 2014 Code • Is there a good level of consistency between the narrative reporting in and the reforms of the audit market by the UK Competition and Markets the front and the financial reporting in the back of the report, and does Authority. Accordingly, the Group confirms that it complied with the the messaging reflected in each remain consistent when read provisions of the Competition and Markets Authority’s Order for the independently of the other? financial year under review. For the financial year ending 1 July 2017, the committee has recommended to the Board that Deloitte LLP be Is the Report an appropriate document for shareholders? reappointed under the current external audit contract and the directors will • Are the statutory and adjusted measures explained clearly with be proposing the reappointment of Deloitte LLP at the 2016 AGM. appropriate prominence? • Are the key judgements referred to in the narrative reporting and the key External auditor effectiveness financial and internal control matters reported in this audit committee During the year, the Audit Committee Chair led the process to assess the report consistent with the disclosures of key estimation uncertainties and effectiveness of the audit process. The primary purpose of this assessment critical judgements set out in the financial statements? was to gain assurance that the external auditor had conducted a • How do these compare with the risks that the external auditor Deloitte comprehensive, appropriate and effective audit. It was particularly important LLP include in their report? this year in order to set standards and expectations with Deloitte LLP, who had just completed their first full year as the Group’s new statutory auditor. Is the Report understandable? Through a constructive, honest and open dialogue with the external auditor • Is there a clear and understandable framework to the report, with the about its performance, the objectives of the process were to: important messages highlighted appropriately throughout? • Assess each phase of the audit process against a quality framework, as • Is the layout clear with good linkage throughout in a manner that reflects shown in the table on page 76 the whole story? • Discuss with the external auditor what areas went well and what could Conclusion be improved Following its review, the committee concluded that the disclosures, and the • Result in optimised assurance being derived from the audit processes and controls underlying their production, were appropriate and The assessment was carried out in conjunction with each key phase of recommended to the Board that the Annual Report and Financial the audit. Statements for the year ended 2 July 2016 is fair, balanced and understandable. The observations from this assessment for the 2015/16 financial year were presented and discussed at the September 2016 Board meeting and it was Long term viability statement concluded by the audit committee that the audit process was effective. During the 2015/16 financial year, the committee’s terms of reference were extended to include providing advice to the Board on the form and basis underlying the long term viability statement. The committee reviewed the process and assessment of the Group’s prospects made by management including: • The review period and alignment with the Group’s internal long term forecasts • The assessment of the capacity of the Group to remain viable after consideration of future cash flows, expected debt service requirement, undrawn facilities and access to capital markets • The modelling of the financial impact of certain of the Group’s principal risks materialising using several plausible scenarios Management also sought independent external advice on best practice to ensure appropriate compliance with the requirements of the 2014 Code. Details of our viability statement can be found in the ‘managing risk’ section on page 41.

74 The Go-Ahead Group plc I Annual Report and Accounts 2016 Key financial and internal control matters During 2015/16, the committee considered the following key financial and internal control matters in relation to the Group’s financial statements and disclosures, with input from management and the external auditor

Key financial and internal control matters for 2015/16 How the committee addressed these key financial matters Compliance with franchise terms and conditions relating to the rail The committee regularly reviews the accounting policies relating to components of the Group, specifically relating to the accounting for income and cost arising from franchise agreements. At interim and year related income and costs arising from franchise agreements. end reviews, a full schedule of material income statement and balance

Please see page 120 for further information. sheet is assessed against the committee’s expectations and discussed with report Strategic the Group Chief Executive, the Group Chief Financial Officer and, where appropriate, the external auditor. Ongoing review of provisions for liabilities, specifically relating to At interim and year end, the levels of provision for third-party claims, lease third-party claims and lease return and dilapidation provisions for rolling return and dilapidation provisions are reviewed with the Group Chief stock, stations, depots, other properties and measurement of Executive and the Group Chief Financial Officer. Management’s review is uninsured liabilities. supported by reports from appropriate third-party experts who Please see note 24 of the consolidated financial statements for independently assess the required provision based on their industry further information. knowledge and an understanding of the Group’s specific circumstances.

Increases in provisions, utilisation and release of provisions are all Governance reviewed for reasonableness in light of these reports and the Group’s specific circumstances. Impairment testing in respect of the carrying value of goodwill on the The ongoing review of goodwill and carrying value of investments, as Group’s investments. presented by management, is challenged by the committee. This is done Please see note 13 of the consolidated financial statements for by assessing the expected performance of the individual cash generating further information. units and ensuring that relevant risk factors are imputed to the rate of return used to assess net present value of future cashflows. The Financial statements committee also reviews historic performance against expectations set in previous years. Assumptions underpinning the calculation of the Group’s defined benefit Pension scheme liabilities are assessed on behalf of the Group by pension liabilities. independent actuaries. Additionally the committee assesses the underlying Please see note 27 of the consolidated financial statements for assumptions with other professional advisors to ensure that the actuaries’ further information. own assumptions are appropriate for the Group. The committee also discusses the appropriateness of the assumptions with the Group’s

external auditor. Shareholder information Ongoing review of changing issues such as the impact of the European The audit committee’s review of risks and uncertainties in the wider Working Time Directive on holiday pay. economy encompasses emerging risks and considers each when appropriate to the Group’s circumstances. The committee will seek specific legal or other professional advice to support its assessment of areas that could affect the Group. Understanding and treatment of exceptional items in the year The committee will consider separate disclosure of exceptional income end accounts. or costs in light of the FRC recommendations of a balanced and Please see note 7 of the consolidated financial statements for consistent approach. The committee is mindful of the need to understand further information. the underlying trends of each division within the business with the impact of large and unusual items separated out as necessary to avoid distortions from such non-recurring aspects. Ensuring operating company compliance with Group policies and The committee, together with the Group Chief Executive and the Group procedures and maintaining the required financial control environment. Chief Financial Officer, approves the scope of internal audit including the cycle of visits to test operating company compliance and financial control, based on a risk assessment. The results of the internal audit visits are considered by the committee, together with management’s responses to any improvement points. Control matters and reporting issues identified as part of the external auditor interim and year end audits are also reviewed by the committee which considers the adequacy of any management responses. In addition management ensure that the recruitment and review process for operating company directors gives confidence in the calibre of the operating company teams and their management, and review of the control environment in which they operate.

The Go-Ahead Group plc I www.go-ahead.com 75 Audit committee report continued

External auditor effectiveness The audit committee reviewed an audit quality framework which assessed the following key audit phases:

Phase Areas covered Audit planning and design • Team structure and leadership demonstrated by the audit partner • Integrated audit approach • Audit tailored to the business • Leveraging sources of assurance • Use of innovation and technology Audit execution • Behavioural factors including professional challenge • Technical excellence • Communication and audit reporting • Audit efficiency and project management Independence and quality control • Review of external auditor’s internal quality control procedures • Review of the provision of non-audit services by the external auditor • Consideration of audit firm transparency report in line with the 2014 Code, paying specific attention to the sections on independence and quality assurance and training Role of management • Detailed questioning of the role of management both at operating company and Group level

Independence, objectivity and fees During the financial year, the principal external auditor’s fees were £0.6m The Board recognises the importance of auditor independence and is aware (2015: £0.5m); in addition, non-audit fees of £0.1m (2015: £0.2m) were of the situations that may give rise to the impairment of auditor payable to the principal auditor. In comparison, non-audit fees paid to other independence. The audit committee carefully considers the objectivity of the providers during the financial year were £1.4m (2015: £1.5m). This auditor on an annual basis, in relation to both the audit process and the comprised of £1.1m being paid to KPMG in respect of bid-modelling costs relationship with the Group. and £0.3m to PwC for internal audit work. In order to safeguard auditor objectivity and independence, the committee A limited number of our smaller operating companies used Grant Thornton has, as part of its terms of reference, the following policy for the provision of as their auditor during the year. Total fees to Grant Thornton during the non-audit services by the external auditor: financial year were less than £0.1m (2015: less than £0.1m). Grant Thornton received non-audit fees of less than £0.1m (2015: less than £0.1m). • The auditor will only be used for the provision of non-audit work if it can be demonstrated that the engagement will not impair independence, is a natural extension of their audit work or there are other overriding reasons that make them the most suitably qualified to undertake the work • The auditor will not provide certain categories of non-audit services to the Group, such as internal audit and litigation support; the full list of which can be found in the committee’s terms of reference • The provision of certain non-audit services (including accounting and tax services if the fees exceed a cumulative £50,000) is subject to approval by the audit committee • The ratio of the external auditor’s audit to non-audit fees during the year, as a proportion of the annual external audit fee, is kept under review by the committee

76 The Go-Ahead Group plc I Annual Report and Accounts 2016 How we manage the Group’s risk management The review however did identify that risk management could be enhanced, and internal control system particularly around the assessment of the controls in place and the focus of discussions throughout the process. A number of enhancements were The Board’s responsibility therefore made to our risk management process: The Board has overall responsibility for risk management and the system of • Risk registers have been updated to rate more effectively the strength internal controls and for reviewing their effectiveness. Some of these of the control/mitigation in place and the effectiveness of the responsibilities have been delegated to the audit committee as outlined assurance provided below. The system is designed to manage rather than eliminate risk of failure to achieve the Group’s business objectives and can only provide reasonable • To improve the formal biannual discussions at operating company board meetings, a new self-assessment document has been created with the aim

and not absolute assurance against material misstatement or loss. report Strategic of helping management consider what are the most important risk and Internal control and risk management control areas to discuss. This then flows up to the audit committee and Board, thus ensuring the right risk management discussions at this level The key roles and responsibilities of each of the respective functions within the Group’s system of risk management are detailed on page 41. These enhancements were introduced for the year ending 2 July 2016 and the committee found that these changes improved the effectiveness of their During the year, the committee commissioned PwC, which is also the review of the internal control and risk management systems. The committee Group’s internal auditor, to undertake an independent review of the Group’s will continue to review whether there are further enhancements that can be existing risk management processes. The review found that Go-Ahead’s made, particularly in the context of PwC’s review and the new requirements approach to risk management is supported by a structured oversight and of the 2014 Code. established processes for identifying, quantifying, reporting and monitoring Governance risk. In particular, PwC noted that: Key features of the Group’s risk management • There is an inherent and embedded understanding of the key risks facing and internal control system the Group on a day-to-day basis The key features of the Group’s internal control and risk management • Strategic risk perspectives and operational risk issues are brought to the system are set out on the following page. The Board has confirmed that attention of the Board by the Group Chief Executive through hands‑on through its audit committee and the committee’s review of the key financial management of the business and internal control matters for 2015/16 as detailed on page 75, it has • Willingness to take on risk is debated by the Board as a normal part of reviewed the effectiveness of the system of internal financial, operational and Financial statements decision‑making. The Group’s risk appetite is inherently understood compliance controls and risk management, and considers that this system of internal controls operated effectively throughout the financial year and up to • Appropriate governance structures are in place to provide oversight over the date on which the financial statements were signed. key risks and controls at Group, rail and bus operating company level. Risk is regularly discussed through these structures • Periodic risk reporting takes place from the operating companies to the audit committee and Board in line with the agreed process

and methodology Shareholder information • Risk and opportunities are actively identified during the bid process for new franchises or acquisitions • Key risk areas are identified, assessed and prioritised • Progress against actions is monitored by senior management, the executive directors and the audit committee

The Go-Ahead Group plc I www.go-ahead.com 77 Audit committee report continued

Key features of the Group’s risk management and internal control

Group structure The Group’s devolved organisational structure supports an effective top-down/bottom-up approach to risk management and control

Compliance management Annual certification by each Leadership operating company that it has Clear leadership from the Board adhered to the Group’s policies and with the executive directors playing procedures manual, which reinforces an integral role in working with the Group’s corporate governance, operating companies internal control processes and management of risk

Strategy and financial reporting A comprehensive Group-wide system of Board-level reporting financial reporting, budgeting and cash Regular review of reports received forecasting and control through which the from the Group’s internal auditor, consolidated financial accounts are health and safety consultants, prepared and submitted to the Board external auditor and the executive monthly and from which the interim directors and annual consolidated financial reporting is derived Health and safety reporting Health and safety standards established across all operating companies and key performance indicators monitored on a monthly basis at operating company and Board level

78 The Go-Ahead Group plc I Annual Report and Accounts 2016 Internal auditor The Group’s internal audit function has been outsourced to PwC on a Focus on cyber security rolling 12 month contract, with overall responsibility and direction being Go-Ahead continues to focus on ensuring it is retained by the audit committee. The internal audit function provides assurance over the effectiveness of key internal controls as identified as part protected against the threat of cyber security of the risk assessment process. In addition to meetings with local attack as resilient IT systems are essential to management, the internal auditor reports to the executive directors at least our commercial success. We take the protection six times a year and to the audit committee at least four times a year. of data security and privacy seriously and have The committee keeps under review the internal audit relationship with policies in place to ensure our data is handled PwC and maintains the procedures necessary to ensure appropriate sensitively, with respect, and in a way that complies, report Strategic independence of the internal audit function. as a minimum, with any legal requirements.

In accordance with the previously agreed internal audit plan for the two Our Board of directors has endorsed an internal Enterprise years ending June 2017, the committee reviewed reports confirming the Information Security Charter demonstrating its commitment to treating findings from the internal audit reviews undertaken, the actions taken to information and cyber security as a critical business issue. Work has implement the recommendations made in these reports and the status of been carried out across the Group to create a security-aware progress against previously agreed actions. workforce and working environment and to implement controls that are proportionate to risk. We have also ensured that individuals who

Whistleblowing and anti-bribery procedures are information owners are accountable and understand and comply Governance The Group is committed to the highest standards of quality, honesty, with information security policies and procedures. openness and accountability. The Group and all operating companies have All employees of the Group have responsibility for information and whistleblowing policies in place. Employees are encouraged to raise genuine security and an ongoing communications campaign, alongside regular concerns under the policy and any concerns raised are investigated carefully briefing and training sessions, ensures its importance is appreciated. We and thoroughly to assess what action, if any, should be taken. Any matters of have recently created a new aide‑memoire for operating companies to significance are reported to the audit committee. help them identify incidents and ensure they’re reported internally. We regularly review our crisis response and probe for vulnerabilities in our

The Board supports the objectives of the Bribery Act and procedures have Financial statements been established to ensure that compliance is achieved. These set out what automated and manual responses. is expected from employees to ensure that they protect themselves as well However, it is vital that as technology and law change our business as the Group’s reputation and assets. Training has been provided to the procedures also change and follow industry best practice. We therefore Board and senior management and is refreshed on a regular basis. Any work with data protection agencies and IT advisors to strengthen our breach of the Bribery Act will be regarded as serious misconduct, potentially systems and procedures. We also update our procurement systems justifying immediate dismissal. and processes to ensure that our supplier base understands the importance of this issue and we are members of industry groups and

London First’s Security and Resilience Network supported by world Shareholder information experts in security counter terrorism, resilience, business continuity and policing.

The Go-Ahead Group plc I www.go-ahead.com 79 Nomination committee report

Culture Our employees will play an important role in shaping our culture and their behaviours will support our new vision, attitudes and beliefs. The committee will reflect this in its oversight of succession planning, leadership development and the talent framework and will also build them into the Board’s recruitment, development and succession considerations.

Diversity The Group has continued to focus on improving diversity. The diversity steering group established last year has provided support and direction to the diversity and inclusion forum, in addition to reviewing strategy and guiding policy across the Group and operating companies. Diversity initiatives continue to develop and we now have representatives from the rail division on the diversity steering group, which will enable us to extend this work across the rail division over the coming year. As a Board, we take our responsibility to monitor developments in corporate governance very seriously, to ensure that we remain at the “During the year, the committee led forefront of good governance practices. Examples of this for the nomination committee during the year included consideration of the Financial Reporting the process to appoint a Group Council’s discussion and feedback papers on UK Board Succession Planning Chief Financial Officer” and The Governance Institute’s research report on the role of the nomination committee. One of our key focus areas for the year ahead will be to consider in more detail the actions that we can take to further improve nomination committee effectiveness. Dear Shareholder

During the year, the committee focused on the areas of work highlighted as key priorities in last year’s annual report. Andrew Allner, Succession planning Nomination Committee Chair I am pleased to report that I completed the review of the Board’s composition during the year, which included meeting with each non- 8 September 2016 executive director to discuss their tenure and contribution to the Board. To support the plan and timetable now agreed, one of our priorities for the year ahead will be to assess the existing skill set of the Board. We will then develop a skills gap analysis to ensure that there is a link between Board succession planning and the development of our strategy and culture. The committee also received regular updates on the senior management’s leadership and talent framework and pipeline and this year there was a ‘deep dive’ assessment of critical roles, with an increased focus on ensuring that this work more closely aligned with our succession planning and strategic planning. This year’s internal Board evaluation review did however identify that there was still more to be done to align senior management succession planning to strategic planning and corporate culture and we will oversee this work as a means of selecting the individuals best suited to the Group’s future direction.

Appointment of Group Chief Financial Officer During the year, the committee was responsible for leading the process for appointing a new Group Chief Financial Officer, to replace the departing Group Finance Director. In March 2016, the Board was pleased to welcome Patrick Butcher to the Group and full details of the process undertaken and induction are provided on pages 81 and 66 respectively.

80 The Go-Ahead Group plc I Annual Report and Accounts 2016 Nomination committee report at a glance

Nomination committee Highlights/progress made Priorities for objectives set for 2015/16 against 2015/16 objectives 2016/17 • Review Board composition and non-executive • Appointment of Group Chief Financial Officer • Improve committee effectiveness through best rotation in the context of business needs • Review of Board composition and non-executive practice initiatives • Future orientated Group wide succession director rotation • Continue focus on ensuring Board and senior planning aligned to strategy • Future orientated Group wide succession management succession planning are aligned to • Further development of the leadership and planning more aligned to strategy strategy and culture talent framework and pipeline • Further development of the leadership and • Undertake Board skills assessment and gap analysis

• Development of the diversity initiatives in the bus talent framework and pipeline report Strategic division across the rail division and wider Group • Induction of rail representatives into the diversity • Oversight of leadership and talent initiatives, • Appoint a replacement Group Finance Director steering group linking to new vision, attitudes and beliefs and facilitate his/her induction to the Group • Full integration of the rail division into the diversity steering group and forums

More information on pages 81 to 83

Nomination committee membership Attendance Governance

Andrew Allner Committee Chair Katherine Innes Ker Katherine Innes Ker Senior Independent Director

Nick Horler Independent Non-Executive Director Andrew Allner Adrian Ewer Independent Non-Executive Director

David Brown Group Chief Executive Financial statements Nick Horler Carolyn Ferguson attends the meetings in her capacity as Group Company Secretary Adrian Ewer * With effect from the start of the 2016/17 financial year, and in accordance with best practice, the Group Chief Executive will no longer be a member of the nomination committee. Shareholder information Committee at work – recruitment of Patrick Butcher, Group Chief Financial Officer In July 2015, the search for a Group Chief Financial Officer to replace the An important part of this process was for the Nomination Committee departing Group Finance Director, commenced. The nomination Chair to ensure that all Board members were kept up to date. In addition committee directed the selection process, which included agreeing a to the committee meetings held throughout the process, the Board and candidate profile and engaging Russell Reynolds (Russell) to work with the the remuneration committee also held meetings to specifically discuss the committee on this assignment. Russell has no other connection to the committee’s recommendation and to agree the appropriate remuneration Group. In addition to strong leadership and people development qualities, package, before approving Patrick’s appointment, which was announced on the committee sought candidates with a track record of delivery and 2 November 2015. credibility and a strong focus on commercial finance and contract work, as Patrick Butcher joined the Group as Group Chief Financial Officer on 14 well as seeking a number of key performance and personal attributes March 2016. He came from Network Rail where he had been Group aligned to the Group’s culture. Finance Director since 2009, and brings a wealth of industry experience to Russell researched the market for potential candidates to produce a ‘long the position having held finance director roles at English, Welsh and list’ of candidates for the committee’s consideration. From this ‘long list’, the Scottish Railways (now DB Schenker), Mapeley Limited, London committee agreed that a number of candidates, including one internal Underground and King’s College Hospital. His early career was spent at candidate, should meet with the Group Chief Executive and Group HR Deloitte & Touche as a management consultant and auditor. Until recently, Director before a ‘short list’ of candidates were invited to attend a site visit he was also a member of the British Transport Police Authority. with the Group Chief Executive. Patrick Butcher emerged as the preferred Following Keith Down’s resignation on 6 December 2015, Go-Ahead’s candidate, meeting the profile requirements with his skills and experience. Group Financial Controller, Paul Edwards, was appointed as Interim Group Having confirmed his interest in the role, he met with the Chairman/ Finance Director which ensured an orderly transition in the intervening Nomination Committee Chair and then the remaining members of period prior to Patrick’s appointment date. the Board.

The Go-Ahead Group plc I www.go-ahead.com 81 Nomination committee report continued

Board composition and skills The committee reviews the tenure of individual non-executive directors on a regular basis in the context of length of service, experience, independence, Succession contribution and skills. This is not only from a current strategy perspective planning and talent but also taking into account potential future strategic needs. This year’s management review also enabled the Board to confirm that the contributions made by all directors continued to be effective and that the Group should support their re-election. For Katherine Innes Ker, who was approaching her six-year term with the Group in July 2016, there was a more comprehensive review, with greater challenge and discussion, before the committee concluded that Katherine’s term should be extended beyond six years. Developing Nomination Board diversity The nomination committee considers that the Board consists of individuals people Committee with the right balance of skills, diversity, experience and knowledge to provide strong and effective leadership of the Group. The Board consists of the Chairman, three non-executive and two executive directors, who together bring a diverse and complementary range of backgrounds, personal attributes and experience. The majority of the Board, excluding the Chairman, are independent non-executive directors.

Diversity and Time commitments inclusion The time commitments required from the non-executive directors, and their other commitments, are also reviewed as part of the year end process. Prior to any new commitments being made by directors, agreement is sought from the Chairman. This year, the committee was again satisfied that there are no conflicts of Succession planning and talent management interest and that all directors have sufficient time to fulfil their responsibilities. The annual leadership review is now an embedded process within each of In particular, the committee reviews the time commitments of those our operating companies and the results are consolidated and analysed by directors who chair committees or who have roles on other Boards to Group HR. Succession risks, critical roles and scarce skills are identified ensure that they have sufficient time to fulfil their responsibilities to the through this process. The talent strategy is reviewed each year to address Go-Ahead Board. This is to ensure that they are able to be fully engaged and this maturing agenda. actively involved with the Group’s business throughout the year. The committee recognises the importance of preparing a pipeline of high quality internal talent that are ready for senior management and Board Committee effectiveness positions in a range of roles. During the year, the committee was updated on The committee’s performance was also reviewed during the year through the succession plans for all senior management across the Group, including the internal Board evaluation facilitated by the Group Company Secretary. succession risks that were being planned for. Where there had been changes The review found that the positive trend of improvement had continued, to the individuals in key critical roles, or new roles were established, the which was largely attributable to the quality of information now being committee was updated on the plans and process for making future received by the committee and the related more detailed discussions appointments to these roles. around the areas of succession planning, leadership, talent management The Board recognises that significant advantage is to be gained by identifying and diversity. and developing our own people as well as bringing in skills from outside the organisation. We continue to strengthen our internal retention strategies to Committee purpose and responsibilities include career planning, personal development plans, coaching and The purpose of the nomination committee is to keep the Board’s secondments. governance, composition, skills, experience, knowledge, independence and succession arrangements under review and to make appropriate The committee takes an active interest in talent management across the recommendations to the Board to ensure the Group’s arrangements are Group and this year the committee received more information on how the consistent with the highest corporate governance standards. pipeline of talent was being managed and how this worked to support succession planning at senior levels. There is now strong evidence to support During the year, the committee met four times. Two of these meetings were the success of the Group’s talent pool programme introduced four years scheduled and two were additional meetings to deal with the departure of ago, with a good proportion of colleagues who have been through this the former Group Finance Director and the appointment of the new Group programme having been promoted or taken on broader responsibilities. A Chief Financial Officer. number of colleagues are also now supporting or continuing to support the mobilisation of the Singapore operations, with only a small proportion A full list of responsibilities is detailed in the committee’s terms of reference overall having actually left the business. The Group’s talent pool is now the which are reviewed regularly, approved by the Board, and available on the first port of call when looking for internal candidates for existing or new Group’s corporate website (www.go-ahead.com) or upon request from the roles, with new support tools and coaching programmes being developed to Group Company Secretary. support the development of others.

82 The Go-Ahead Group plc I Annual Report and Accounts 2016 With future plans to further strengthen the Group’s approach to succession people managers and those involved in recruitment. The focus of the training planning, leadership development and talent management, the committee is understanding the implications of the Equality Act and recognising will continue to play an active role, particularly with regard to ensuring that unconscious bias. initiatives are aligned with strategic planning and corporate culture. Recently, representatives from the rail division have joined the diversity For further information on our people, see pages 32 to 35. steering group, which means that the good work we have done in the bus division will be extended into the rail division in the next year. Board diversity In preparation for the Gender Pay Gap regulations coming into force we The Board continues to believe that the Board Diversity Policy remains have developed a plan that will represent best practice. This will create a appropriate. We have one female non-executive director on the Board, with benchmark for the Group to be able to understand any issues that may Strategic report Strategic the percentage of female representation currently 17%. While this is below exist in differences between male and female pay across the Group. Action the recommendation of Lord Davies, which was that there should be a plans will then be created by each operating company to address any minimum female representation on Boards of 25% by 2015, the Board’s narrative that we create from the analysis of the data. view is that this level of female representation is appropriate at this time. This is particularly in the context of the comparatively small size of Go-Ahead’s Developing people Board, which we feel is appropriate, with all the directors participative People are the heart of any business and the Board continues to recognise and accountable. the importance of investment both to develop people to execute their role Our foremost priority however remains to ensure that Go-Ahead continues effectively and to grow the talent required for the future. There is a formal to have the strongest possible leadership and we will appoint only the most and maturing agenda that is discussed on a regular basis. The discussion Governance appropriate candidates. ranges across succession planning, talent identification, management and development, leadership development, and the resources provided by the The annual Board evaluation process includes an assessment of the Board’s Group Academy. The Group Academy offers core learning resources to diversity including gender, helping the Board to objectively consider its everyone in the Group. Commitments communicated in 2016 are that all composition and effectiveness. people identified as successors will have a personal development plan; high performers will attend a tailored leadership development programme and Diversity and inclusion the pipeline of graduates will continue and be extended. The bus graduate

The nomination committee also oversees the diversity and inclusion scheme has been maintained and a new rail scheme has started with five Financial statements initiatives across the wider Group. We continue to acknowledge that in the new entrants in 2016. It is anticipated that even more graduates will be transport industry generally there are barriers to attracting, retaining and recruited into both schemes in 2017. Group HR focus has been on defining promoting women and some of this is legacy and also cultural. The a future focused resourcing strategy to identify the critical and scarce skills promotion of women to the Board and other senior positions within the that will be required to deliver our strategic objectives. These skills will come Group is completely dependent on our ability to attract, develop and from both inside and outside the business. Individual operating companies promote women from within. There has been an increased focus to improve are initiating a wide range of local activities to develop their own talent, gender ratios in all businesses and a Group diversity and inclusion manager including establishing their own learning portals which are connected to, and has recently been appointed to ensure time and focus is given to this supported by, the Group Academy. Shareholder information important topic. Our diversity and inclusion steering group and forum are now well established and working well together. Our forum is supported by ‘champions’ who each represent our operating companies and sponsor local activities and good progress has continued to be made during the year, with highlights including: • Recruitment fairs and open days to successfully attract women into bus driver roles • Modernised recruitment advertising to be attractive to women and more diverse groups • Increased connections with local schools promoting bus driving as a positive career option for boys and girls Our new diversity steering group, which was created in 2015, has also made good progress establishing best practice in policy and equal opportunities. All of our operating companies are working with the steering group to establish best practice processes and have agreed to complete a peer assessment against a common set of standards. This will establish a benchmark for each business which they will then continue to work to improve. Training resources have been developed by the Group Academy and each operating company has committed to delivering a training plan that will include all

The Go-Ahead Group plc I www.go-ahead.com 83 Directors’ remuneration report

Appointment and remuneration of Group Chief Financial Officer Patrick Butcher was appointed as Group Chief Financial Officer on 14 March 2016. Upon his appointment, the committee reviewed his remuneration, taking into account all relevant factors including his experience, the pay level of his predecessor and the principles of our remuneration policy. No compensation was paid for incentives lost from his previous employer. The committee determined that the Group Chief Financial Officer should be paid an annual base salary of £370,000 per annum, which was below that of his predecessor. He was not eligible to receive a salary increase from 1 April 2016, his next salary review being on 1 April 2017. The committee also determined that the Group Chief Financial Officer would not be eligible to receive an LTIP award but would be eligible to receive an annual performance-related bonus for the year ended 2 July 2016 and that this would be based solely on the achievement of Group operating profit and cashflow targets. This would be pro-rated to reflect his period of service, with any award being paid fully in deferred shares to immediately Annual Statement by the align his interests with those of our shareholders. Full details of the Remuneration Committee Chair performance against targets can be found on pages 95 and 96. Departure of former Group Finance Director Dear Shareholder The former Group Finance Director, Keith Down resigned on 6 December 2015 and continued to receive salary and benefits until that date. In On behalf of the Board, I am pleased to present the directors’ remuneration accordance with our remuneration policy, he forfeited any entitlement to report for the year ended 2 July 2016. This report sets out our policy, as an annual performance-related bonus for the year ended 2 July 2016. approved by shareholders at the 2015 AGM, how this policy was Additionally, Keith’s LTIP and Deferred Share Bonus Plan awards granted implemented during 2015/16 and how we will apply the policy for the in 2013 and 2014 lapsed in full on 6 December 2015. forthcoming year 2016/17. Single remuneration figure Performance and reward – Group Chief Executive The total single remuneration figure for our executive directors for the year At the request of the Group Chief Executive, no annual increase was ended 2 July 2016 is shown below: awarded to his base salary from 1 April 2016. During the year under review, the Group Chief Executive informed the 2016 2015* £’000 £’000 committee that he did not wish to be considered for his 2015/16 annual performance-related bonus in acknowledgement of the operational issues Group Chief Executive – David Brown 1,311 2,134 and difficulties that continue to be experienced in GTR, and the direct and negative impact this is having on customers. The committee accepted that Group Chief Financial Officer – Patrick Butcher 269 – no annual performance-related bonus would be paid to the Group Chief Former Group Finance Director – Keith Down 191 1,246 Executive for the year ending 2 July 2016. * Restated from last year to reflect actual value of the 2012/13 LTIP award which The committee considered the extent to which the Long Term Incentive vested in November 2015. See page 95 for further information. Plan (LTIP) award granted to the Group Chief Executive in October 2013 should vest. This award was based on the achievement of specific long term Full details of the remuneration earned by the Group Chief Executive, the value creation targets set three years ago which included stretching total Group Chief Financial Officer and the former Group Finance Director can shareholder return, earnings per share and operating profit targets for each be found in this report. of the bus and rail divisions. This award is paid in shares to further align the interests of the Group Chief Executive with those of our shareholders. Further details of the performance achieved are provided on page 96.

84 The Go-Ahead Group plc I Annual Report and Accounts 2016 Remuneration linked to strategy Our remuneration policy has been structured to support the financial Performance in 2015/16 objectives and strategic priorities of the Group in a manner which is aligned The Group has achieved another year of good financial performance with shareholders’ interests. It encourages achievement of our corporate and has continued to deliver sustainable returns and growth for its goals through (i) an annual performance-related bonus linked to achieving shareholders. Key highlights of the year included: profitable growth and specific strategic targets; and (ii) long term incentives • Successful win of two German rail services contracts expected to that only reward for absolute shareholder value creation and delivery of generate combined revenues of around €1.6bn over the life of long term earnings growth. the contracts A large proportion of the executive directors’ remuneration is payable in • Successful win of a 25 route five-year bus contract in Singapore Strategic report Strategic Strategic report Strategic shares. Half of the total annual performance related bonus is awarded as expected to generate total revenues of around SGD$500m over deferred shares, to be held for a period of three years and subject to five years recovery and withholding provisions. Awards under the LTIP are also made • Maintained sector leading customer satisfaction in regional in shares, further aligning the interest of our executive directors with those bus operations of our shareholders. Awards granted under the LTIP are now also subject to an additional two-year holding period following the vesting of awards. • Record year of operating profits from our regional bus division and achievement of £100m profit target on an adjusted basis, through sector leading margins Future policy • Southeastern delivered a strong trading performance and continued The Group’s remuneration policy was approved by shareholders at last

to operate at maximum profit share GovernanceGovernance year’s AGM in October 2015 and the current intention is that it will apply until the 2018 AGM. As such, we will not be asking shareholders to vote on • London Midland continued its trend of improvement, with strong the policy at the 2016 AGM. customer satisfaction scores, and is now operating under the new direct award contract which was secured during the year Implementation of remuneration policy 2016/17 • Shortlisted for the new West Midlands franchise beginning The committee is not proposing any changes to remuneration policy for the October 2017 financial year 2016/17. However, the committee does have the discretion to • The integration last year of Southern and Gatwick Express Financial statements vary the weighting of and choice of LTIP metrics prior to each award. In completes the formation of GTR and the largest franchise ever let Financial statements accordance with best practice, the committee will be consulting with the by the government, with about 330 million passenger journeys Group’s major shareholders and shareholder representative bodies made per year and employing around 6,900 people regarding proposed changes to the LTIP’s threshold and maxima EPS metrics • Introduction of new rolling stock to improve services to customers in response to the revised outlook for GTR and analysts’ repositioning as longer, more spacious trains are introduced across the their forecasts. GTR franchise The outcome of this consultation will be confirmed to the Group’s major • The interim dividend was increased by 6.5%. The final dividend shareholders and shareholder representative bodies before the 2016 AGM, proposed has also been increased by 6.5% Shareholder information Shareholder information in addition to being disclosed in next year’s annual report. • Net cash of £323.0m, adjusted net debt of £239.3m and an adjusted The committee has also agreed that the Group Chief Executive’s net debt to EBITDA ratio of 1.36x below the Group’s target level shareholding requirement will increase from 150% to 200% of base salary in Despite good financial performance across the Group during the year, accordance with best practice. While it will not be incorporated into the one of our greatest challenges has been with our train operating current remuneration policy until the next opportunity, it is company GTR and the operational issues and constraints associated effective immediately. with the major Thameslink infrastructure programme. As previously I was very pleased that, at last year’s AGM, 97.77% and 99.23% of the votes reported, additional resources being invested in GTR to support cast supported the resolutions to approve our remuneration policy and the service delivery in the current challenging operational and industrial annual report on remuneration respectively. This indicates support for the relations environments have depressed margins for the year ended committee’s focus on implementing the key principles of our executive 2 July 2016. The issues we continue to experience mean that we have remuneration approach. not provided the levels of reliability and services our passengers expect, which has caused inconvenience and hardship for our passengers. We We look to shareholders to approve the report at the forthcoming AGM. now no longer expect to recover the profit shortfalls and margins over the life of the contract will be lower than originally forecast.

Katherine Innes Ker, Remuneration Committee Chair

8 September 2016

The Go-Ahead Group plc I www.go-ahead.com 85 Directors’ remuneration report at a glance

Remuneration committee Highlights/progress made Priorities objectives set for 2015/16 against 2015/16 objectives for 2016/17 • Ensure that the Group’s remuneration policy for • Approved leaving terms for the former Group • Set targets and review outcomes for the departure of executive directors is applied Finance Director and recruitment terms for performance-related remuneration, taking for the departing Group Finance Director the new Group Chief Financial Officer in into account strategic objectives, risk policies • Ensure that the Group’s recruitment accordance with policy and systems remuneration policy is taken into account when • Set targets and reviewed outcomes for • Continue to review remuneration policy in appointing the new Group Chief Financial Officer performance-related remuneration, taking the context of best practice and emerging • Set targets and review outcomes for into account strategic objectives, risk policies developments performance-related remuneration and systems • Ensure regular dialogue with major shareholders • Continue to remain abreast of best practice • Assessed performance against targets for the and shareholder advisory bodies and take into and market developments in remuneration annual performance-related bonus 2015/16 and account their views when formulating policy and and reporting accepted the Group Chief Executive’s request making decisions • Monitor the ongoing balance between long term not to be considered for an annual performance- • Ensure compliance with all regulatory and short term incentives to ensure that they related bonus 2015/16 or April 2016 annual requirements, including overseeing compliance remain appropriately aligned to the Group’s salary increase with the Equal Pay Bill and gender pay strategic objectives • Reviewed remuneration policy in the context of gap reporting • Provide ongoing training and support for best practice and remained abreast of emerging • Review the overall remuneration policy for committee members developments such as the work of the senior management and the pay and Investment Association’s Executive Remuneration employment conditions elsewhere in the Group Working Group • Review performance of the committee and its • Reviewed the overall remuneration policy for external advisors senior management and the pay and employment conditions elsewhere in the Group • Reviewed performance of the committee and its external advisors

More information on pages 94-103

Committee members and secretary

Katherine Innes Ker Committee Chair Andrew Allner Chairman Nick Horler Independent Non‑Executive Director Adrian Ewer Independent Non‑Executive Director

Carolyn Ferguson attends the meetings in her capacity as Group Company Secretary

About this report Attendance This report sets out details of the remuneration policy for our executive and non-executive directors, describes the implementation of the approved remuneration Andrew Allner policy and sets out the remuneration received by the directors for the year ended 2 July 2016. No changes have been made other than to reflect changes to salary levels and the fact that the policy was formally approved by shareholders at the 2015 AGM. Katherine Innes Ker The report complies with the provisions of the Companies Act 2006, Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and the Listing Rules of the Financial Conduct Nick Horler Authority (FCA). The Group also follows the requirements of the UK Corporate Governance Code published in September 2014 (the 2014 Code). For completeness and transparency, this part of the directors’ remuneration report Adrian Ewer includes the remuneration policy in the same form as it was approved by shareholders at the 2015 AGM (set out on pages 88 to 93) and intended to operate until the 2018 AGM unless any significant changes to the policy are proposed that require shareholder approval prior to this date. The Annual Statement by the Remuneration Committee Chair (set out on pages 84 and 85) and the annual report on remuneration (set out on pages 94 to 103) will be subject to an advisory vote at the 2016 AGM.

86 The Go-Ahead Group plc I Annual Report and Accounts 2016 At a glance – application of the policy in the year ahead

David Brown Patrick Butcher Policy element Group Chief Executive Group Chief Financial Officer Base salary from 1 April 2016 £541,800 £370,000

% increase from prior year 0% n/a Strategic report Strategic Pension Does not receive any form of pension provision Receives a non-pensionable cash supplement of 13% of base salary

Performance-related bonus Up to 150% of base salary

Performance-related bonus metrics Adjusted Group operating profit (65%) Group cashflow (10%)

Strategic KPIs (25%) Governance

Payment for threshold performance 0% 0%

Deferred share bonus plan 50% of the performance-related bonus is deferred for three years in Go-Ahead shares

LTIP 150% of base salary 100% of base salary Financial statements

LTIP metrics Compound annual growth in adjusted EPS (40%) Relative TSR (40%) Customer satisfaction ratings (20%)

Payment for threshold performance For the EPS and TSR measures not more than 25% Shareholder information

Malus and clawback The performance-related bonus and LTIP are both subject to recovery (clawback) and withholding (malus) provisions for three years following the award. Malus applies to the period prior to vesting for both the performance-related bonus and LTIP. Clawback applies to the cash and deferred shares awarded under the performance-related bonus for a period of three years from the date the cash payment is made and the date the share award is granted, and to the LTIP for three years following the date on which an award vests. LTIP awards granted from 2015 must be retained (other than to pay tax and NICs due on receipt of the shares) for two further years.

Dividends on vested awards Participants are eligible for dividend equivalents on awards granted under the deferred share bonus plan or LTIP

Shareholding requirement 150% of base salary* 100% of base salary

* The Group Chief Executive’s shareholding requirement will increase from 150% to 200% in accordance with best practice. While it will not be incorporated into the current remuneration policy until the next opportunity, it is immediately effective.

The Go-Ahead Group plc I www.go-ahead.com 87 Directors’ remuneration report continued

Remuneration policy report

Policy overview The Group’s remuneration policy was approved at the 2015 AGM and is • Remuneration should be judged relative to other companies but without effective until the 2018 AGM. The key principles of the policy are as follows: the corresponding improvement in corporate and individual performance, should avoid paying more than necessary • Remuneration should be designed to promote the long term success of the Group and the creation of shareholder value • Due regard should be given to pay and employment conditions elsewhere in the Group • The policy should provide an appropriate balance between fixed and performance-related, cash and share-based and immediate and The policy table that follows provides detail on each key element of deferred remuneration remuneration, including the maximum potential value of each element, a • Performance related elements of remuneration should be relevant, brief summary of how it works and details of any performance metrics. transparent, stretching and rigorously applied • Remuneration incentives should be compatible with risk policies and systems

Remuneration policy table for executive directors Element & maximum Purpose & link to strategy Operation Maximum Performance targets Base salary • Salary is the core • Paid monthly in cash • Annual salary increases for n/a reward for the role executive directors will not • In determining base salaries, the and enables the normally exceed the committee considers: Group to recruit and average increase awarded retain individuals of –– Pay levels at companies of a to other UK based the calibre required to similar size and complexity employees deliver its strategic in the FTSE 250 • However, larger increases objectives and lead its –– External market conditions may be awarded in certain management team, –– Pay and conditions circumstances including but without paying more elsewhere in the Group not limited to: than is necessary –– Individual performance, –– Increase in scope of skills, experience in post • Base salary also responsibilities of and potential reflects the individual’s the role skills, expertise, • Salaries are normally reviewed –– To apply salary experience and role annually with changes taking progression for a newly within the Group effect from 1 April each year appointed director • The committee may also –– Where a director’s review salaries on an ad hoc salary has fallen basis if an individual is significantly below promoted and/or there is an market position increase in their responsibilities Performance- • Focuses on the key • Annual, non-pensionable • Maximum of 150% of salary • Performance metrics will related bonus priorities for the payments made after the AGM normally include Group profit, coming year cash and individual strategic goals • Half of any bonus is paid in with profitability accounting for at • Deferral of half of cash following the AGM and least half of the opportunity bonus into Group half is paid in shares deferred shares aligns executive for a period of three years • A quality of earnings review and directors’ interests health and safety target • Based on the achievement of with those thresholds also apply to the specific financial and non of shareholders full bonus financial objectives • Subject to recovery and withholding provisions for three years following the award

88 The Go-Ahead Group plc I Annual Report and Accounts 2016 Element & maximum Purpose & link to strategy Operation Maximum Performance targets Long term • Aligned to the • Annual grant of performance • Maximum of 150% of salary • Performance measured over incentive plan strategic objectives of shares that vest three for Group Chief Executive three financial years (LTIP) the Group to deliver years after grant (subject to the and 100% of salary for • Performance metrics will include long term returns satisfaction of other executive directors compound annual growth in to shareholders performance conditions) • Exceptional adjusted EPS and relative TSR • Awards granted from 2015 circumstances maximum with each accounting for at least

must be retained (other than (e.g. on recruitment) of 25% of the award report Strategic to pay tax or NICs due on 200% of salary • For the 2015 awards adjusted receipt of the shares) for two EPS would have a 40% weighting, further years relative TSR would have a 40% • Subject to recovery and weighting and customer withholding provisions for three satisfaction ratings in our bus and years following vesting rail divisions will each have a 10% weighting • For the EPS and TSR measures not more than 25% of the Governance award may vest at threshold performance • The committee has the discretion to vary the weighting of and choice of metrics including the comparator groups prior to each award. However, it would Financial statements consult with shareholders before introducing significantly different metrics Pension • Provides a cash • Monthly, non pensionable • A cash allowance of up to n/a allowance alternative to pension payment, paid in cash 15% of salary may be contributions in line provided1 with market practice Shareholder information Other • Ensures package is • The main benefits include • Benefits are intended to be n/a benefits competitive with family private healthcare, death market competitive but are market practice and in service and life assurance not subject to a maximum employees have a cover (4x base salary), free as the cost of providing the minimum level of travel on the Group’s services insured benefits is set by insured benefits and professional membership third party providers and subscriptions can vary from year to year All employee • Executive directors are • Executive directors may • Participation levels operate n/a share plans eligible to participate participate in these plans in line in accordance with HMRC in HMRC approved all with HMRC guidelines limits as amended from employee schemes currently prevailing (where time to time which encourage relevant), on the same basis as share ownership other eligible employees Share • To align the financial • Executive directors are • 150% of salary holding for n/a ownership interests of the required to retain 50% of the the Group Chief Executive2 executive directors post tax gain on vested LTIP and 100% of salary holding with those of and deferred share awards until for other executive shareholders such time as the Group Chief directors Executive has achieved a holding of 150% of salary and other executive directors have achieved 100% of salary 1. The current Group Chief Executive does not receive any form of pension provision from the Group. The Group Chief Financial Officer receives a cash allowance of 13% of salary. 2. The Group Chief Executive’s share ownership guidelines will increase from 150% to 200% in accordance with best practice. While it will not be incorporated into the current remuneration policy until the next opportunity, it is immediately effective.

The Go-Ahead Group plc I www.go-ahead.com 89 Directors’ remuneration report continued

Considerations when determining remuneration policy If an event occurs which results in the annual performance-related bonus or The remuneration committee considers shareholder feedback received and LTIP performance conditions and/or targets being deemed no longer guidance from shareholder representative bodies more generally when appropriate (e.g. a material acquisition or divestment), the committee will reviewing remuneration policy, in addition to best practice and the have the ability to adjust appropriately the measures and/or targets and alter 2014 Code. weightings, provided that the revised conditions or targets are not materially less difficult to satisfy. A substantial proportion of the executive directors’ pay is performance- related, with half of the annual bonus also being subject to deferral into the Outstanding share incentive awards that remain unvested or unexercised at Group’s shares. A broad range of financial and non-financial targets are the date of this report, as detailed on pages 98 and 99, remain eligible for included in our incentive structure and recovery and withholding provisions vesting or exercise based on their original award terms. apply to both the annual performance‑related bonus and LTIP from 2015/16. In addition, awards granted under the new LTIP will be subject to an Consistency with remuneration for the wider Group additional two year holding period following the vesting of awards. Remuneration arrangements are determined throughout the Group based on the same principles: that reward should be sufficient to attract and retain Working with the audit committee, the remuneration committee ensures high-calibre talent and that reward should support the delivery of business that risk is properly considered in setting the overall remuneration policy. strategy. The committee reviews the remuneration for those employees The executive directors are also incentivised to take environmental, social immediately below the executive directors to ensure that this incentivises and governance matters seriously and to consider the long term implications the delivery of both strategy and business objectives. of their decision making. Accordingly, in line with the Investment Association Guidelines on responsible investment disclosure, the committee has linked a Through our devolved structure, local management are then empowered to proportion of the annual bonus performance‑related to the achievement of create tailored remuneration packages on an individual business-by-business safety and good governance objectives. basis. As a result, the components and levels of remuneration for different employees will differ from the policy for executive directors as set out In setting the remuneration policy the committee considers the above. Employees may receive bonus, pension and share awards which vary remuneration packages offered to employees across the Group. As a point according to the local business and market practice. The maximum provision of principle, salaries, benefits, pensions and other elements of remuneration and incentive opportunity available are determined by the seniority and are benchmarked regularly to ensure they remain competitive in the responsibility of the role. markets in which we operate. Participation in the LTIP is currently limited to executive directors only As would be expected, we have differences in pay and benefits across the while participation in the deferred share bonus plan is limited to executive businesses which reflect individual responsibility, market and geographical directors and senior management. location. When considering annual salary increases, the committee reviews the proposals for salary increases for the employee population generally, as it It is an important part of Go-Ahead’s values that all colleagues, not just does for any other changes to remuneration policy being considered. management, have the opportunity to become shareholders in the Group. All employees, with at least six months’ continuous service, therefore have The Group did not formally consult with employees when drawing up the the opportunity to participate in our Share Incentive Plan and Save As You directors’ remuneration policy. However, the Group considers any informal Earn schemes. feedback received through employee staff surveys or other channels.

Committee discretions The committee operates the Group’s variable incentive plans according to their respective rules and in accordance with HMRC rules where relevant. To ensure the efficient administration of these plans, the committee will apply certain operational discretions. These include the following: • Selecting the participants in the plans on an annual basis • Determining the timing of grants of awards and/or payment • Determining the quantum of awards and/or payments (within the limits set out in the policy table on pages 88 and 89) • Determining the extent of vesting based on the assessment of performance • Making the appropriate adjustments required in certain circumstances (e.g. change of control, rights issues, corporate restructuring events, and special dividends) • Determining good leaver status for incentive plan purposes and applying the appropriate treatment • Undertaking the annual review of weighting of performance measures, and setting targets for the annual performance-related bonus and LTIP from year to year

90 The Go-Ahead Group plc I Annual Report and Accounts 2016 Performance measure selection With the exception of base salary, benefits, pension allowance and participation in all employee share plans, all other elements of the remuneration packages of the executive directors are linked to performance. In choosing the performance metrics and targets we have sought to provide a strong and demonstrable link between management incentives and the Group’s strategic objectives. We have also set a performance based framework for remuneration which is consistent with the Group’s scale and unique structure. This enables the executive directors and senior managers to share in the long term success of the Group without delivering excessive benefits or encouraging short termism or excessive risk taking. It also aligns their interests with those of our shareholders.

The choice of performance measures for the annual performance-related bonus is based on a mixture of financial, non financial, personal and strategic report Strategic targets, with a clear alignment to the Group’s short and long term strategic objectives. A significant proportion of executive directors’ potential remuneration is performance-related. This comprises annual bonuses under the performance- related bonus and long term incentives under the LTIP. The charts below provide estimates of the potential future reward opportunity for the executive directors split between fixed, target and maximum remuneration scenarios. The scenarios do not take into account share price appreciation or dividends.

Total remuneration by performance scenario for 2016/17 financial year (£’000) Governance

Group Chief Executive Group Chief Financial Officer

Fixed Bonus LTIP Fixed Bonus LTIP

Fixed £545 Fixed £419 Financial statements

Target £1,155 Target £789

Max £2,171 Max £1,344

The assumptions underlying each scenario are described below: Shareholder information Fixed remuneration: base salary as at 1 April 2016, benefits as received in 2015/16 and, for the Group Chief Financial Officer only, the value of his pension allowance. Target: fixed remuneration plus half of the maximum annual performance-related bonus award (75% of base salary) plus threshold vesting under the LTIP awards (37.5% of base salary for the Group Chief Executive and 25% of base salary for the Group Chief Financial Officer). Maximum: fixed remuneration plus the maximum annual performance-related bonus award (150% of base salary) plus full vesting of LTIP awards (150% of base salary for the Group Chief Executive and 100% of base salary for the Group Chief Financial Officer).

Recruitment remuneration The committee assesses on an individual basis whether it is necessary to On appointing a new executive director, the committee would seek to align compensate executive directors for incentives lost from their previous the remuneration package for the relevant individual with the Group’s employers. The level and timing of such compensation will normally seek to remuneration policy as set out on pages 88 and 89. It would aim not to pay reflect or take account of the term and performance conditions of the more than necessary to secure the right candidate and the package would payments or awards forgone on a like for like basis. take into account the experience and calibre of the individual concerned. Compensation will normally take the form of conditional awards or options The remuneration package for a new executive director would be set in over Group shares but cash and/or time vested payments may be made accordance with the terms of the approved remuneration policy in force at where the committee believes these would offer better value for money for the time of appointment. shareholders. Existing arrangements will be used where possible, however, Where a newly appointed executive director is required to relocate, the the committee also reserves the ability to make use of the flexibility Group may pay the costs of relocation if appropriate and may provide tax provided under the Listing Rules without prior shareholder approval. The equalisation and assistance with reasonable legal fees. committee is sensitive to investor concerns about such arrangements and will endeavour to take cost effective approaches. Any executive director promoted internally may remain eligible for payments under incentive plans joined and/or contractual arrangements During the year, the recruitment remuneration policy was followed for the entered into before joining the Board. However the committee will have appointment of Patrick Butcher, Group Chief Financial Officer. There were no regard to best practice in reviewing the treatment of any such entitlements. relocation costs or compensation paid for incentives lost from his previous employer.

The Go-Ahead Group plc I www.go-ahead.com 91 Directors’ remuneration report continued

Service agreements of executive directors Departure of executive directors The Group Chief Executive and the Group Chief Financial Officer entered Executive directors’ service agreements contain a provision, exercisable at into a service agreement with The Go-Ahead Group plc on 1 April 2011 the discretion of the Group, to pay an amount in lieu of notice on early and 14 March 2016 respectively. The term of each service agreement is termination of the agreement. Such payments are limited to base salary plus undefined and is terminable by either the Group on one year’s notice or by pension allowance and other benefits (such as family private healthcare and the executive director on six months’ notice. The directors’ service life assurance cover), but would not automatically include entitlement to agreements are available for inspection at the Group’s registered office. bonus or share awards. The Group can also pay legal fees and outplacement services. There are no External appointments provisions for special pension benefits, such as beneficial early retirement In accordance with their service agreements, the executive directors are able terms. Other than the notice periods specified above, the executive to accept external appointments and are permitted to retain any fees directors are not due any contractual compensation payments in the event paid for such services, provided that approval is given by the Board. The of early termination of a service agreement. The committee believes that the Group Chief Executive is a non-executive director of ATOC Limited and Rail agreements provide appropriate protection of the interests of shareholders Delivery Group Limited. He does not receive any fees in relation to when negotiating a termination, at which time the committee would take these roles. The Group Chief Financial Officer does not have any into account the departing director’s duty to mitigate his/her loss when external appointments. determining the amount of any compensation. The former Group Finance Director, Keith Down, is a non-executive director During the year, this policy was applied for the departure of the former of Topps Tiles plc and received fees of £18,840 for the period from 28 June Group Finance Director. Salary, pension allowance and other benefits only 2015 to 6 December 2015 when he resigned from the Board were paid, with no entitlement to bonus or share awards for the year ended (2014: £17,409). 2 July 2016. Deferred bonus shares and LTIPs that were unvested on cessation of employment also lapsed.

Loss of office payments The treatment of remuneration for executive directors whose service with Go-Ahead terminates will be considered on a case-by-case basis. However, the table below sets out the treatment of elements of remuneration that would normally apply:

Other leavers Reason for termination Retirement, redundancy; disability; death or change of ownership (e.g. resignation/misconduct) Salary and contractual benefits Payment equal to the aggregate of the base salary and the value of any Paid to date of termination, contractual benefits for the notice period including any accrued or including pay for any accrued untaken holiday but untaken holiday Performance-related Bonus awarded (subject to satisfaction of performance targets) for the No award for year of bonus (cash) relevant financial year, pro-rated accordingly for the period of employment termination to the date of cessation of employment Performance-related bonus Awards vest on the date of cessation of employment Awards lapse in full on cessation (deferred shares) of employment Unvested LTIP awards Awards normally vest at the normal vesting date unless the remuneration Awards lapse in full on cessation committee determines the award should vest on the date of cessation of employment of employment The amount of award vesting will be subject to the satisfaction of performance conditions and will normally be reduced pro rata to reflect time elapsed between grant and cessation of employment although the committee has discretion to waive pro‑rating where it believes it would be appropriate to do so

92 The Go-Ahead Group plc I Annual Report and Accounts 2016 Policy table for Chairman and non-executive directors The remuneration policy for the Chairman and the non-executive directors is set out in the table below. Non-executive directors are not involved in any discussions or decisions about their own remuneration. Element Purpose and link to strategy Operation Fees The basic fee for the Chairman and non-executive The remuneration of the non-executive directors directors is a fixed annual fee commensurate with takes the form solely of fees, which are set annually the time each director is expected to spend on the by the Board Group’s affairs and with the responsibility assumed as

The level of fees set is subject to the current limits as report Strategic director of a listed company set out in the Group’s articles of association Fees are set at a level to attract and retain individuals (currently aggregate fees of £500,000 for all with appropriate expertise to complement the non-executive directors) Group’s strategy Fees are reviewed on 1 April each year with reference to comparable listed companies in the FTSE 250

Additional fees Additional fees may be paid to non-executive Non-executive directors are not eligible to receive Governance payable directors who are chair of a Board committee and/ performance-related remuneration or pension for duties or who occupy the role of senior independent entitlements or to participate in share director to reflect the additional responsibility and option schemes time commitment required Non-executive directors may also be provided with limited travel, hospitality and accommodation expenses

The Chairman and non-executive directors do not receive benefits in kind nor do they participate in the Group’s short and long term incentive Financial statements arrangements or in its pension scheme.

Letters of appointment for Chairman and non-executive directors Each non-executive director has a letter of appointment which provides for a notice period of six months. The terms of appointment contain no entitlement to compensation for early termination. The letters of appointment are available for inspection at the Group’s registered office during normal business hours and will also be available for inspection prior to and during the AGM.

The contract dates and notice periods for the non-executive directors are shown in the table below: Shareholder information Notice period Notice period Director Date of service agreement from the Group from the director Andrew Allner October 2008 6 months 6 months Katherine Innes Ker July 2010 6 months 6 months Nick Horler November 2011 6 months 6 months Adrian Ewer April 2013 6 months 6 months

Retirement and re-election of directors In accordance with the Group’s articles of association and the provisions of the 2014 Code, all directors are required to submit themselves for re-election at each AGM. Accordingly, all directors will be submitting themselves for re-election with the exception of Patrick Butcher, Group Chief Financial Officer, who will offer himself for election for the first time.

The Go-Ahead Group plc I www.go-ahead.com 93 Directors’ remuneration report continued

Annual report on remuneration • Recommend and monitor the level and structure of remuneration for senior management within the Group The remuneration committee presents the annual report on remuneration • Determine the fees of the Chairman which, together with the annual statement from the Remuneration The members of the committee have no personal interests in the matters Committee Chair, will be put to shareholders as an advisory vote at the to be decided by the committee other than as shareholders, and have no AGM to be held on 3 November 2016. conflicts of interest arising from cross directorships. Committee members did not attend meetings where matters associated with their own Remuneration committee report remuneration were considered. All members of the committee are independent non-executive directors. During the year, the committee’s recommendations were all accepted The committee met seven times during the year. Four of these meetings unanimously by the Board and implemented without amendment. were scheduled, with three additional meetings to discuss the remuneration of the new Group Chief Financial Officer and remuneration policy more Terms of reference generally. Attendance at the committee meetings is set out on page 59. The committee’s terms of reference are reviewed annually and approved by the Board. They are available on our corporate website at Role of the committee www.go-ahead.com or upon request from the Group Company Secretary. The committee’s principal responsibilities are to: External advisors to the committee • Develop the remuneration policy for the executive directors, including the balance between fixed and performance‑related, cash and share-based, New Bridge Street (NBS) (a trading name of Aon Hewitt Limited, part of immediate and deferred remuneration Aon plc) act as independent remuneration advisors to the committee. The advisor was selected through a thorough process led by the Remuneration • Review the ongoing appropriateness and effectiveness of the Group’s Committee Chair and was appointed by the committee. Neither remuneration policy Aon Hewitt Limited nor the wider Aon plc provided any other services to • Regularly review the design and targets for performance-related pay the Group during the year and therefore the committee was satisfied that it arrangements and approve the total annual payments and awards provided objective and independent advice. NBS is a member of the • Ensure adherence to the policy set for executive directors’ service Remuneration Consultants Group and complies with its code of conduct. agreements, including recruitment and compensation payment policies The fees payable to NBS for advice throughout the year were £38,816 (2015: £20,778).

Statement of voting at general meeting

At last year’s AGM (22 October 2015) the directors’ remuneration report received the following votes from shareholders:

Votes for and discretionary Votes against Total votes Withheld Remuneration report 23,971,292 185,563 24,156,855 3,410,784 99.23% 0.77% 100% Remuneration policy 21,842,550 497,285 22,339,835 5,227,804 97.77% 2.23% 100%

Implementation of remuneration policy for 2015/16

Executive directors’ annual base salary (audited) Base salary levels for executive directors are shown below and will remain in place until April 2017 when they will be reviewed again:

From From % Executive directors 1 April 2016 1 April 2015 Increase Group Chief Executive, David Brown £541,8001 £541,800 0 Group Chief Financial Officer, Patrick Butcher £370,0002 n/a n/a 1. David Brown has, at his own request, not received an increase this year. 2. Patrick Butcher was appointed on 14 March 2016. His first review following his appointment will be April 2017.

94 The Go-Ahead Group plc I Annual Report and Accounts 2016 Executive directors’ remuneration (audited) The below table summarises all remuneration that was earned by each executive director during the year and computes a single total remuneration figure for the year. The value of the performance-related bonus reflects what was earned in respect of the year but will be paid out shortly after the AGM in November 2016. Similarly the value of the LTIP reflects the award granted in 2013 which will vest in November 2016 as a result of the performance through the three year period ended at the completion of our financial year on 2 July 2016. The LTIP value in the below table is based on the average market share price in the last quarter of 2015/16 of £24.54. This value has been estimated as the award will not actually vest until shortly after the 2016 AGM. The closing share price on 2 July 2016 was £19.78 which would result in a lower LTIP value than that stated in the table below. The remuneration committee reviews all incentive awards prior to payment and uses judgement to ensure that the final assessments of performance are fair and appropriate. If circumstances warrant it, the committee may adjust the final payment or vesting downwards. The remuneration for the Group Chief Executive reflects his request not to be considered for the 2015/16 annual performance-related bonus award. report Strategic

Short term incentives (Performance-related bonuses2) Deferred Long term Single total Taxable share incentives Pension Other remuneration Salary benefits1 Cash bonus2 bonus2 LTIP3 allowance4 remuneration5 figure £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive directors

Group Chief Executive, David Brown 2016 542 3 – – 744 – 22 1,311 Governance 2015 535 3 279 279 1,038 – – 2,134* Group Chief Financial Officer, Patrick Butcher 2016 112 1 – 141 – 15 – 269 2015 – – – – – – – – Former executive director Former Group Finance Director, Keith Down 2016 155 1 – – – 21 14 191 Financial statements 2015 351 2 183 – 664 46 – 1,246*

* Restated from last year to reflect actual value of the 2012/13 LTIP award which vested in November 2015. For the Group Chief Executive and the former Group Finance Director this was £942,053 (2015 estimation: £970,823) and £602,911 (2015 estimation: £621,324) respectively based on the share price as at 5 November 2015 of £25.016. The cash equivalent value of the gross cumulative dividend payment was as disclosed last year being £96,216 for the Group Chief Executive and £61,578 for the former Group Finance Director.

1. Taxable benefits

The taxable benefit for the executive directors comprises family healthcare membership. Shareholder information

2. Cash bonus and deferred share bonus (performance-related bonus) Group Chief Financial Officer only The table below illustrates the components of the annual performance-related bonus award at maximum and actual payouts for business objectives set for the Group Chief Financial Officer from 14 March 2016, the date he joined the Board:

Weighting Actual payout Actual payout (percentage of (percentage of (percentage of Metric Performance measure maximum) Achieved maximum) salary) Adjusted Group operating profit (AGOP) Actual 2015/16 AGOP 87% 96.1% 83.6% 125.4% Group cashflow Net debt after adding 13% 0.0% 0% 0% back restricted cash Total 100% 96.1% 83.6% 125.4% The Group Chief Financial Officer was awarded an overall bonus of 125.4% of pro-rata salary based on AGOP and cashflow targets only. All of this bonus is payable in deferred shares to be held for a period of three years to immediately align his interests with those of shareholders and is subject to clawback provisions. The former Group Finance Director did not receive any annual performance-related bonus on account of his cessation of employment on 6 December 2015.

The Go-Ahead Group plc I www.go-ahead.com 95 Directors’ remuneration report continued

Adjusted Group operating profit (AGOP) The AGOP target for the 2015/16 financial year was as shown below, with payout on a sliding scale from the 2014/15 AGOP:

Measure Target Payout (percentage of maximum) AGOP 2015/16 AGOP of £137.7m in 2014/15 0% AGOP budget of £158.2m in 2015/16 87% Actual AGOP for the year ended 2 July 2016 was £157.4m, resulting in a pro-rated payout of 83.6% of the maximum 87% (125.4% of salary) for the Group Chief Financial Officer.

Cashflow For Group cashflow (defined as net debt after adding back restricted cash), the target for the 2015/16 financial year was £166.0m. Actual Group cashflow was £239.3m (2015: £244.7m) resulting in no payout for this element of bonus.

Health and safety target threshold The annual performance-related bonus includes an underpin that enables the committee to use its discretion to scale back the bonus earned should there be a catastrophic event or a deterioration in health and safety performance. The committee concluded that payment of the annual performance-related bonus was appropriate in light of the Group’s health and safety performance in the year.

Recovery and holding provisions The annual performance-related bonus is subject to recovery and holding provisions for three years following vesting.

3. Vesting of 2013/14 LTIP award – Group Chief Executive only The table below summarises the performance conditions for the Group Chief Executive’s 2013/14 LTIP award and the actual performance achieved. This award was subject to performance conditions measured over three financial years ending with the 2015/16 financial period. As shown below, the adjusted EPS growth target (25% weighting) and relative TSR target (25% weighting) were fully achieved. For the bus division, the profit target (25% weighting), which was to continue to organically grow bus division profits to £100m by 2015/16, was also fully achieved. For the rail division, 15% of the profit target (25% weighting) was achieved on the basis of the performance on London Midland and Southeastern having been excellent, with both franchises being extended and generating the maximum possible profit under their direct awards. Full payout of this element was not achieved as the GTR margins over the life of the contract will be lower than originally forecast.

Payout Compound annual Relative TSR vs FTSE 250 Bus division profit Rail division profit (% of each element) growth in adjusted EPS (excluding certain sectors) in 2015/16 in 2015/16 Weighting (% of total award) – 25% 25% 25% 25% Below threshold 0% Less than RPI + 2% p.a. Below median – – Threshold 25% RPI + 2% p.a. Median – – Between threshold Between Between RPI + 2% p.a. and Between median and upper – – and maximum 25% and 100% RPI + 8%p.a. quartile Maximum 100% RPI + 8% p.a. Upper quartile – – Performance achieved Adjusted EPS of 220.5p. 26th out of 122 companies See commentary above From a base of 139.6p this is equivalent to growth of RPI + 14.65% p.a. Actual % vesting 90% 25% 25% 25% 15% The value of the Group Chief Executive’s LTIP award is shown in the executive directors’ remuneration table on page 95. This includes the value of the long term incentive shares vesting which amounted to £672,764 based on the average market share price in the last quarter of 2015/16 of £24.54. This value has been estimated as the award will not actually vest until shortly after the 2016 AGM. The closing share price on 2 July 2016 was £19.78 which would result in a lower LTIP value at vesting. The cash equivalent value of the gross cumulative dividend payment is also payable equating to £70,821.

96 The Go-Ahead Group plc I Annual Report and Accounts 2016 4. Pension allowance The Group Chief Financial Officer receives a non-pensionable cash supplement of 13% of his base salary. The Group Chief Executive does not receive any form of pension provision from the Group.

5. Other remuneration The value of the gross cumulative dividend payment in relation to the 2012/13 deferred share bonus award which vested in November 2015 following the end of the three year deferral period.

2015/16 LTIP awards granted during the year ended 2 July 2016 (audited) As reported in the annual report last year, an LTIP award was granted to the Group Chief Executive during the year ended 2 July 2016. This was structured report Strategic as a nil-cost option, which is exercisable at the end of a three year performance period commencing with the start of the 2015/16 financial period and ending with the 2017/18 financial period, subject to the satisfaction of performance conditions. Vested awards are then subject to a further two year holding period other than for sales to settle any tax or NIC liability on exercise of the awards. The 2015/16 grant policy was to grant awards with a face value of 150% of salary for the Group Chief Executive only as follows:

Number of shares over Share price at grant which award was Face value of award2 % of award which vests Vesting determined by Executive director Basis of award granted date granted 1 (£'000) as threshold performance over David Brown 150% of salary £25.46 32,618 830 10% for EPS, 25% Three financial years for TSR and 10% for ending on 1 July Governance each customer 2018 element 1. The number of shares over which the award was granted was calculated using a share price of £24.58, this being the average of the middle market quotations during the period of five dealing days immediately prior to the date of grant in accordance with the plan rules. 2. The face value of the award has been calculated on a share price of £25.46. This was the share price on 4 November 2015, the date of grant. Following consultation with our major shareholders and shareholder representative bodies regarding changes to our remuneration policy for the 2015/16 financial year, which included the LTIP performance targets, the performance conditions attaching to the 2015/16 LTIP awards were as follows: Financial statements

Relative TSR vs Compound annual FTSE 250 EPS payout (% of growth in adjusted Payout (% of TSR (excluding certain Payout (% of each Rail customer Bus customer element) EPS element) sectors) customer element) service target service target Weighting (% of total award) – 40% – 40% – 10% 10% Below threshold 0% Less than RPI + 0% Below median 0% Less than 78% Less than 90%

5% p.a. Shareholder information Threshold 10% RPI + 5% p.a. 25% Median 10% 78% 90% Between threshold Between 10% Between RPI + Between 25% Between Between 10% Between 78% Between 90% and maximum and 100% 5% p.a. and RPI and 100% median and and 100% and 82% and 93% + 13% p.a. upper quartile Maximum 100% RPI + 13% p.a. 100% Upper quartile 100% 82% 93% The customer satisfaction targets will be as measured by the independent passenger watchdog Transport Focus (formerly Passenger Focus) and published in the annual report. This is a key operating performance measure for Go-Ahead. It is a strategic priority for the Group to provide high-quality service and customer satisfaction is a critical measure of our performance. This influences our ability to retain franchises and to win new ones. Ensuring management is focused on this strategic measure is critically important as a driver of long term shareholder value. There is an additional profit threshold for the customer service target which is that adjusted EPS growth over the three year period must be greater than RPI + 5% before any of the customer service element of award can vest. The above EPS targets are based on current accounting policies and will be adjusted should there be any changes to these policies. Awards will continue to vest three years after grant, subject to the performance conditions being met over broadly the same period.

The Go-Ahead Group plc I www.go-ahead.com 97 Directors’ remuneration report continued

Statement of directors’ shareholdings and share interests (audited) The committee believes that the shareholding requirements for executives play an important role in the alignment of the interests of executives and shareholders and help to incentivise executives to deliver sustainable long term performance. From the 2015/16 financial year, the Group Chief Executive’s guideline was 150% of salary, which had increased from 100% previously, while the Group Chief Financial Officer’s guideline was 100% of salary. Until they reach these levels, the executive directors are expected to retain 50% of the post-tax gain on vested LTIP and deferred share awards. From the 2016/17 financial year, the committee has agreed that the Group Chief Executive’s share ownership guidelines will increase to 200% in accordance with best practice. LTIP awards granted from 2015 must be retained (other than to pay tax and NICs due on receipt of shares) for a further two years. Details of the interests of the executive directors in shares and long term incentive interests for the period ending 2 July 2016 are set out in the table below. At this date, the Group Chief Executive beneficially held 46,261 shares equating to 169% of base salary (based on the closing share price on 2 July 2016) and therefore meets the shareholding requirement. The Group Chief Financial Officer beneficially held 1,866 shares, which he had purchased shortly after joining the Group, equating to 10% of base salary and therefore does not meet the shareholding requirement yet.

Executive director David Brown8 Patrick Butcher Ordinary shares1 28 June 2015 or date of appointment if later 21,677 0 2 July 2016 46,2612 1,886 Shareholding requirement (% of basic salary) 150% 100% Current shareholding as at 2 July 2016 (% of basic salary)3 169% 10% Shareholding requirement met Ye s No Share options4 Without performance conditions Sharesave5 197 0 With deferral conditions Unvested deferred share bonus awards6 31,364 0 With performance conditions Unvested LTIP awards6 53,953 0 Vested but unexercised share awards7 27,415 0 Shareholding when 2013 DSBP and 2012/13 LTIP awards vest in November 2016 (% of basic salary) 227% 10% 1. Ordinary shares are beneficial holdings which include the directors’ personal holdings and those of their spouses. They also include the beneficial interests in shares which are held in trust under the Group’s Share Incentive Plan. 2. During the year, David Brown’s beneficial shareholding increased by 24,584 ordinary shares. This comprised of 4,590 and 19,923 ordinary shares acquired through the post-tax gain on the 2012/13 deferred share bonus and LTIP awards respectively which vested in November 2015. Additionally, 71 shares were purchased under the Group’s Share Incentive Plan during the period 28 June 2015 and 2 July 2016. For further details on the vesting of the 2012/13 deferred share bonus and LTIP awards, please see page 99. 3. Shareholding as a % of salary includes only ordinary shares. Unvested deferred shares or LTIP awards have not been included. Shareholding is based on the closing share price on 2 July 2016. 4. Deferred share bonus plan and LTIP awards are structured as nil cost options. 5. Sharesave is an all-employee share option plan and has no performance condition as per HMRC Regulations. 6. Excludes deferred share bonus plan shares and LTIP awards which will be granted in November 2016 for the year ended 2 July 2016. The value of deferred share awards granted in respect of the year ended 2 July 2016 is shown in the executive directors’ remuneration table on page 95. 7. Relates to the 2013/14 LTIP award which has vested in respect of the year ended 2 July 2016 and which will be exercised shortly after the AGM, in November 2016. The value of the 2013/14 LTIP award is shown in the executive directors’ remuneration table on page 95. 8. In the period 2 July 2016 to 8 September 2016, David Brown’s ordinary shareholding increased from 46,261 to 46,277 as a result of shares purchased under the Group’s Share Incentive Plan. There have been no other changes in the shareholdings of the executive directors between 2 July 2016 and the date of this Annual Report and Accounts. 9. Keith Down beneficially owned 13,322 as at 28 June 2015 and 13,347 ordinary shares as at 6 December 2015 (the date he resigned as director). Following the vesting of the 2013/14 LTIP award and the 2013/14 deferred share award which will take place in November 2016, the Group Chief Executive’s shareholding will increase to 227% of salary.

98 The Go-Ahead Group plc I Annual Report and Accounts 2016 Executive directors’ interests in outstanding share awards and options (audited) The table below sets out details of the executive directors’ outstanding share awards (which will vest in future years subject to performance conditions and/ or continued service). The Group Chief Financial Officer joined the Group on 14 March 2016 and so had no interests in share awards and options during the year ended 2 July 2016.

Group Chief Executive, David Brown

Awards vested at 2 July 2016 Vested in but not yet exercised1 Mid-market 2014/15 but

price on date Balance at 27 Granted in exercised Lapsed in Balance at 2 Balance report Strategic Plan Date of grant of grant Option price June 2015 year during year year July 2016 Vested Lapsed post exercise Sharesave2 25.03.14 – 17.34 103 – – – 103 – – 103

22.03.16 – 19.11 – 94 – – 94 – – 94

Deferred 13.11.12 12.35 – 8,661 – 8,6612 – – – – – share bonus plan Governance 30.10.13 16.84 – 4,432 – – – 4,432 – – 4,432 05.11.14 25.03 – 15,601 – – – 15,601 – – 15,601 29.10.15 24.13 – – 11,331 – – 11,331 – – 11,331

LTIP 05.11.12 13.06 – 37,658 – 37,6584 – – – – –

30.10.13 16.84 – 30,462 – – – 30,462 27,415 3,047 – Financial statements 05.11.14 25.03 – 21,335 – – – 21,335 – – 21,335 04.11.15 25.46 – – 32,618 – – 32,618 – – 32,618 Total 118,252 44,043 46,319 – 115,976 27,415 3,047 85,514

Former Group Finance Director, Keith Down5 Shareholder information Vested in Awards vested at 2 July 2016 Mid-market 2014/15 but but not yet exercised1 price on date Balance at 27 Granted in exercised Lapsed in Balance at 2 Balance Plan Date of grant of grant Option price June 2015 year during year year July 2016 Vested Lapsed post exercise Sharesave2 25.03.14 – 17.34 103 – – 103 – – – –

Deferred 13.11.12 12.35 – 5,543 – 5,5433 – – – – – share bonus plan 30.10.13 16.84 – 2,836 – – 2,836 – – – – 05.11.14 25.03 – 9,990 – – 9,990 – – – –

LTIP 05.11.12 13.06 – 24,101 – 24,1014 – – – – – 30.10.13 16.84 – 19,496 – – 19,496 – – – – 05.11.14 25.03 – 13,661 – – 13,661 – – – – Total 75,730 – 29,644 46,086 – – – –

1. Relates to the 2013/14 LTIP award which has vested in respect of performance for the year ended 2 July 2016 and will be exercised shortly after the 2016 AGM in November 2016. 2. Sharesave is an all-employee share option plan and has no performance condition as per HMRC Regulations. 3. The 2012/13 deferred share bonus award was exercised on 13 November 2015 with a share price of £25.57. David Brown and Keith Down’s gain on their awards was therefore £221,462 and £141,735 respectively. 4. The 2012/13 LTIP award was exercised on 5 November 2015 with a share price of £25.016. David Brown and Keith Down’s gain on their awards was therefore £942,053 and £602,911 respectively. 5. The former Group Finance Director resigned from the Board on 6 December 2015. Details of his leaving arrangements are set out on page 100. All awards made in 2013 and 2014 and his sharesave award lapsed on leaving the Group. For transparency, these are shown in the ‘lapsed in year’ column.

The Go-Ahead Group plc I www.go-ahead.com 99 Directors’ remuneration report continued

Payments to former directors and payments for loss of office (audited) There were no payments made to former executive directors during the year ended 2 July 2016.

Departure terms for the former Group Finance Director (audited) Keith Down resigned as Group Finance Director on 6 December 2015 and continued to receive salary and benefits until that date. The committee considered the overall circumstances of his departure as well as performance, contractual obligations and plan rules. The committee’s determinations, which are consistent with the remuneration policy, are set out below:

Remuneration element Description Payment in lieu of notice No payment in respect of salary or benefits (or compensation in lieu) in respect of any period after 6 December 2015 or compensation for loss of office was made Performance-related bonus All entitlement to the performance-related bonus for the year ended 2 July 2016 has been forfeited Pension allowance No pension allowance was made in respect of any period after 6 December 2015 and no additional amounts were paid for loss of office Deferred share awards As reported last year, as the former Group Finance Director remained employed by the Group on the vesting date, the 2012/13 deferred shares vested in November 2015 Those other amounts of annual performance-related bonus from 2013 onwards that were compulsorily deferred into shares for a period of three years all lapsed with effect from 6 December 2015 in accordance with the plan rules LTIP awards No 2015/16 LTIP grant was made to Keith Down As reported last year, as the former Group Finance Director remained employed by the Group on the vesting date, the 2012/13 LTIP award vested in November 2015. All other LTIP awards lapsed with effect from 6 December 2015 in accordance with the plan rules

Recruitment remuneration for Group Chief Financial Officer The remuneration package for the new Group Chief Financial Officer comprises the following which is entirely in line with the approved remuneration policy: • A base salary of £370,000 • Family healthcare membership • A non-pensionable cash supplement of 13% of base salary • Eligibility to participate in the Group’s annual performance-related bonus up to a maximum of 150% of base salary per annum • Eligibility to participate in the Group’s LTIP up to a maximum of 100% of base salary per annum • The Group Chief Financial Officer has a service agreement which requires six months’ notice of termination by him and 12 months’ notice by the Group • No compensation was paid for incentives lost from the Group Chief Financial Officer’s previous employer

Percentage change in the Group Chief Executive’s remuneration The table below shows the percentage change in the Group Chief Executive’s total remuneration between the financial years 28 June 2015 and 2 July 2016, compared to the average change for all employees of the Group.

% change from 2015 to 2016 Salary Benefits Bonus Group Chief Executive – (2.8) (100) Average employees 2.3 – (4.1)

100 The Go-Ahead Group plc I Annual Report and Accounts 2016 Group Chief Executive remuneration comparison Annual performance- related bonus (actual Long term incentive award v maximum vesting (vesting v opportunity) maximum opportunity) Single total figure of Year Group Chief Executive remuneration £’000 £’000 (and % vesting) £’000 (and % vesting) 2015/16 David Brown 1,3111 £0 £744 (90%) 2014/15 David Brown 2,1342 £558 (69.6%) £1,067 (100.0%) 2013/14 David Brown 1,9602 £766 (97.5%) £666 (80.0%) Strategic report Strategic 2012/13 David Brown 942 £422 (55.3%) – 2011/12 David Brown 1,022 £513 (68.0%) – 2010/11 David Brown 2513 £125 (100.0%) – 2010/11 Keith Ludeman 1,564 £530 (100.0%) – 1. The single total figure of total remuneration for 2015/16 includes the vesting of the 2013/14 LTIP award. At the request of the Group Chief Executive, there was no annual base salary increase as at 1 April 2016 or any annual performance-related bonus paid for the year ended 2 July 2016. 2. The single figure of total remuneration for 2014/15 (restated) and 2013/14 includes the vesting of the 2012/13 and 2011/12 LTIP awards respectively.

3. Following his appointment in April 2011, the Group Chief Executive was paid a pro-rata performance-related bonus for the financial year 2010/11. Governance

The relative importance of spend on pay The following table sets out the percentage change in dividends and overall spend on pay in the financial year being reported on, compared to that of the previous year.

2015/16 2014/15 % £’m £’m change Dividends £39.4 £36.7 7.4 Financial statements Overall expenditure on pay £1,215.5 £1,079.6 12.6 The Group has not made any other significant distributions and payments or other uses of profit or cashflow deemed by the directors to assist in understanding the relative importance of spend on pay. Shareholder information

Total shareholder return (TSR) performance graph The Go-Ahead Group plc FTSE 250 Index Peer group (average return) The graph to the right shows a comparison of The 300 Go-Ahead Group plc cumulative TSR against that achieved by the FTSE 250 Index for the last seven financial years to 2 July 2016. In assessing the performance of the Group’s TSR, 250 the Board believes the FTSE 250 index comparator group it has chosen represents an appropriate and fair benchmark upon which to measure the Group’s performance for 200 this purpose. This graph shows the value by 2 July 2016 of £100 invested in The Go-Ahead Group plc on 27 June 2009 compared 150 with the value of £100 invested in the FTSE 250 index and our peer group over the same period. The other points plotted are the same values at intervening financial 100 year ends. The table above shows the total remuneration figure for the 50 Group Chief Executive over the same seven year period. The total remuneration figure includes the performance- related bonus and LTIP awards (and the percentage of the maximum opportunity that these represent). 09 10 11 12 13 14 15 16

The Go-Ahead Group plc I www.go-ahead.com 101 Directors’ remuneration report continued

Chairman and non-executive director fees Fee levels for the Chairman and the non-executive directors were reviewed on 1 April 2016 and increased by 2%. Non-executive directors who chair a committee receive an additional fee. From 1 April 2016, an additional fee is also paid to the Senior Independent Director to reflect the additional time commitment attributable to this role.

Additional fee for Senior Independent Additional fee Non-executive director Base fee Director for chairing a committee Total Andrew Allner From 1 April 2016 173 – – 173 £’000 p.a. From 1 April 2015 172 – 172 £’000 p.a. Katherine Innes Ker From 1 April 2016 48 5 5 58 £’000 p.a. From 1 April 2015 47 – 5 52 £’000 p.a. Nick Horler From 1 April 2016 48 – – 48 £’000 p.a. From 1 April 2015 47 – – 47 £’000 p.a. Adrian Ewer From 1 April 2016 48 – 5 53 £’000 p.a. From 1 April 2015 47 – 5 52 £’000 p.a.

Chairman and non-executive directors’ remuneration (audited) The table below sets out a single figure for the total remuneration received by each non-executive director for the year ended 2 July 2016 and the prior year:

Single total remuneration figure £’000 Non-executive director 2016 2015 Andrew Allner 173 170 Katherine Innes Ker 54 52 Nick Horler 47 46 Adrian Ewer 53 52

Non-executive directors’ shareholdings (audited) Non-executive directors are not subject to a shareholding requirement. The shareholdings of each non-executive director is as follows:

As at 2 July As at 27 June 2016 2015 Andrew Allner 742 742 Katherine Innes Ker 116 – Nick Horler 1,038 – Adrian Ewer 138 138

Material contracts There have been no other contracts or arrangements during the financial year in which a director of the Group was materially interested and/or which were significant in relation to the Group’s business.

Implementation of remuneration policy for 2016/17 Details of how the remuneration policy will be implemented for the 2016/17 financial year are set out below.

2016/17 base salaries The base salaries of the executive directors will remain unchanged until the next review on 1 April 2017.

Benefits The benefits for both executive directors will remain consistent with those detailed in the remuneration policy section on pages 88 and 89.

Pension The current pension arrangements described on page 97 will remain in place for the forthcoming financial year.

102 The Go-Ahead Group plc I Annual Report and Accounts 2016 2016/17 Performance-related bonus The performance measures and weightings for 2016/17 which remain unchanged from 2015/16 are as follows:

Metric Weighting (% of maximum bonus) Adjusted Group operating profit (AGOP) 65% Group cashflow 10% Strategic KPIs 25% AGOP, cashflow and strategic KPI targets will be stretching for the 2016/17 financial year and more information on the specific targets and performance against them will be provided retrospectively in next year’s remuneration report to the extent that they are not commercially sensitive at the time. The strategic KPIs include a number of non-financial strategic and personal objectives, including customer satisfaction, communication and reputational KPI’s. A health and safety target threshold will continue to apply to the full bonus, with the remuneration committee having discretion to reduce bonus payments

potentially to zero should it be considered appropriate. report Strategic There will also be an additional rail customer service threshold, with the remuneration committee having discretion to scale back the bonus, if customer satisfaction across the Group’s train operating companies in Spring 2017, as measured by the Transport Focus National Rail Passenger Survey (NRPS) averaged across the Group’s train operating companies (Southeastern, Southern, Thameslink and Great Northern, Gatwick Express and London Midland) is less than the London and South East Sector NRPS reported for Spring 2016. Any bonus payable will be satisfied 50% in cash and 50% in deferred shares. Recovery and withholding provisions will apply to the full performance-related bonus and the audit committee will undertake a formal end-of-year quality of profit and budget review in conjunction with the auditor before approval of any bonus payment.

2016/17 LTIP awards Governance The structure of LTIP awards to be granted in 2016 will remain the same as for the 2015 awards with the EPS and TSR elements of the awards accounting for 40% each and a customer satisfaction target award of 20% split equally between rail and bus. The LTIP award will be subject to recovery and withholding provisions for three years following vesting. An additional two year holding period following the vesting of awards will also apply during which any vested awards may not be sold (other than to pay any tax and NICs due on exercise). This will result in an overall five year period before executives can realise the gain on vested shares. For the year commencing 3 July 2016, the LTIP award for the Group Chief Executive and the Group Chief Financial Officer will have a face value of 150% and 100% of salary respectively. The performance measures and targets for awards to be made in 2016/17 are detailed below: Financial statements

Relative TSR vs Compound annual FTSE 250 EPS payout (% of growth in Payout (% of TSR (excluding certain Payout (% of Rail customer Bus customer element) adjusted EPS element) sectors) customer element) service target service target Weighting (% of total award) – 40% – 40% – 10% 10% Below threshold 0% See below 0% Below median 0% Less than 78% Less than 90%

Threshold 10% 25% Median 10% 78% 90% Shareholder information Between threshold and maximum Between 10% Between 25% Between Between 10% Between 78% Between 90% and 100% and 100% median and and 100% and 82% and 93% upper quartile Maximum 100% 100% Upper quartile 100% 82% 93% The committee is not proposing any changes to remuneration policy for the financial year 2016/17. However, the committee does have the discretion to vary the weighting of and choice of LTIP metrics prior to each award. In accordance with best practice, the committee will be consulting with the Group’s major shareholders and shareholder representative bodies regarding the EPS targets for the 2016/17 awards in response to the revised outlook for GTR and analysts’ repositioning their forecasts. At the time of signing this report the adjusted EPS targets for the 2016/17 awards had not been finalised by the committee and so are not included in the table above. It is intended that these targets will be at least as stretching in the current circumstances as those set for the 2015/16 awards. The outcome of this consultation will be confirmed to the Group’s major shareholders and shareholder representative bodies before the 2016 AGM, in addition to being disclosed in next year’s annual report.

Non-executive directors’ fees The non-executive directors’ fees will remain unchanged until the next annual fee review is undertaken on 1 April 2017.

Katherine Innes Ker, Remuneration Committee Chair

8 September 2016

The Go-Ahead Group plc I www.go-ahead.com 103 Directors’ report

Election and re-election of directors The directors present their report and audited financial statements for The appointment and replacement of directors are governed by the the year ended 2 July 2016. Group’s articles, the 2014 Code, the Companies Act 2006 (the Act) and This report has been prepared in accordance with the requirements of related legislation. The directors are appointed by ordinary resolution at a The Large and Medium-sized Companies and Groups (Accounts and general meeting of shareholders. The directors have the power to appoint a Reports) (Amendment) Regulations 2013 and forms part of the director during the year but any person so appointed must be subject to management report as required under Disclosure and Transparency election at the first AGM following their appointment. The current articles Rule (DTR) 4. Certain information that fulfils the requirements of the require that all directors are subject to re-election on an annual basis. directors’ report can be found elsewhere in this document and is All directors will be submitting themselves for election or re-election at the referred to below. AGM in accordance with the 2014 Code. The Board is satisfied that each director is qualified for re-election by virtue of their skills, experience and Corporate governance report contribution to the Board. Biographical details can be found on pages Under DTR Rule 7, a requirement exists for certain parts of the corporate 60 and 61. governance report to be outlined in this directors’ report. The corporate governance statement setting out how the Group complies with the UK Directors’ indemnities Corporate Governance Code published in September 2014 (the 2014 The Group maintains directors’ and officers’ liability insurance which gives Code) and which includes a description of the main features of its internal appropriate cover for any legal action brought against its directors. The control and risk management arrangements in relation to the financial Group has also granted indemnities to each of its directors to the extent reporting process is set out on pages 58 to 107. The information required permitted by law. Qualifying third party indemnity provisions (as defined in by DTR 7.2.6R can be found in the ‘shareholder information’ section on Section 234 of the Act) were in force during the year ended 2 July 2016 and pages 173 to 175. A description of the composition and operation of the remain in force, in relation to certain losses and liabilities that the directors Board and its committees is set out on pages 60 to 63. may incur to third parties in the course of acting as directors or employees of the Group or of any associated company. Neither the Group’s indemnity Strategic report nor its insurance provides cover in the event that a director is proven to The strategic report on pages 1 to 57 includes an indication of future likely have acted dishonestly or fraudulently. developments in the Group, the Group’s business and model strategy and greenhouse gas emissions. Share capital and substantial shareholdings All information relating to the Group’s capital structure, rights attaching to Articles of association shares, dividends, any restrictions on the transfer of shares, the policy to The Group’s articles can only be amended by a special resolution at a repurchase the Group’s own shares, substantial shareholdings and other general meeting of shareholders. Shareholders of the Group can request a shareholder information is shown on pages 173 to 175. copy of the articles by contacting the Group Company Secretary at the registered office. Change of control Details of change of control provisions in the Group’s rail franchise Directors and their interests agreements and revolving credit facility are set out on page 175. The directors of the Group as at the date of the approval of this Annual There are no agreements between the Group and its directors or Report are shown on pages 60 and 61. All were directors throughout the employees providing for compensation for loss of office or employment year to 2 July 2016, with the exception of Patrick Butcher, Group Chief (whether through resignation, purported redundancy or otherwise) that Financial Officer, who joined the Board on 14 March 2016. Keith Down occurs because of a takeover bid. resigned as Group Finance Director on 6 December 2015. The interests of directors and their connected persons in the shares of the Dividends Group along with details of directors’ share options, are contained in the Our dividend policy is for progressive dividend growth whilst maintaining directors’ remuneration report set out on pages 84 to 103. dividend cover of approximately two times adjusted earnings, on a pre IAS 19 (revised) basis, through the economic cycle. Details of the Directors’ conflicts of interests proposed final dividend payment for the year ended 2 July 2016 are The Board has established robust procedures for ensuring that its power to shown on the consolidated income statement on page 112 of the report. authorise conflicts of interest is operated in accordance with the Group’s articles of association. The Board considers that the procedures in respect of this power, which have been properly followed, have operated effectively during the year and the conflicts register has been updated accordingly. The Board is aware of its directors’ other commitments and any changes to these commitments are advised to and approved by the Board committees.

104 The Go-Ahead Group plc I Annual Report and Accounts 2016 Listing Rule 9.8.4R disclosures Disclosures required pursuant to Listing Rule 9.8.4R of the UK Financial Conduct Authority’s Listing Rules, can be found within the following sections of the Annual Report:

Listing Rule 9.8.4 Required disclosure Reference (1) Interest capitalised and tax relief Not applicable Strategic report Strategic

(2) Publication of unaudited financial information Not applicable

(3) Details of long term incentive schemes Note 6 to the financial statements and directors’ remuneration report on pages 84 to 103 (4) Waiver of emoluments by a director Directors’ remuneration report on pages 84 to 103

(5) Waiver of future emoluments by a director Not applicable Governance

(6) Non pre-emptive issues of equity for cash Not applicable

(7) Non pre-emptive issues of equity for cash by major subsidiary undertakings Not applicable

(8) Parent participation in a placing by a listed subsidiary Not applicable Financial statements (9) Contracts of significance Not applicable

(10) Provision of services by a controlling shareholder Not applicable

(11) Shareholder waivers of dividends Directors’ report on pages 104 to 107

(12) Shareholder waivers of future dividends Directors’ report on pages 104 to 107 Shareholder information

(13) Agreements with controlling shareholders Not applicable

The Go-Ahead Group plc I www.go-ahead.com 105 Directors’ report continued

Share schemes Pension The defined benefit section of the Group’s pension plan closed to future Employee Benefit Trust accrual with effect from 1 April 2014. Existing members were offered the The Computershare Trustees (Jersey) Limited, the Trustee of The Go-Ahead opportunity to join the defined contribution section instead. The defined Group Employee Trust (the Trust), holds shares for the benefit of the contribution section of the Group’s pension plan was closed to new Group’s executive directors and in particular for the satisfying of awards employees with effect from 1 April 2013 but existing members continue to made under the Group’s Long Term Incentive Plan (LTIP) and Deferred contribute at their current contribution levels. A new ‘workplace savings Share Bonus Plan (DSBP). During the financial period, as part of a 12 month section’ was set up with effect from 1 April 2013 for the purposes of planned programme of monthly share purchases, the Trust purchased a total auto-enrolment. This provides a default investment option and at least the of 172,964 ordinary shares at a total price of £4,366,152.11 (including all minimum level of contributions as required under Government regulations. associated costs). The average price was £22.58 per share. As at 8 September 2016 (being the latest practical date prior to the date of this Reappointment of external auditor report) the Trust held 147,886 ordinary shares representing 0.34% of the issued share capital of the Group, less treasury shares, in trust for the benefit Details of the reappointment of the external auditor are provided of the executive directors of the Group under the LTIP and DSBP. The on page 74. voting rights in relation to these shares are exercised by the Trustee and dividends are waived while the shares are held by the Trustee. Post balance sheet events There have been no material events from 2 July 2016 to the date of Share Incentive Plan this report. The Group operated a Share Incentive Plan during the year under review, enabling employees of the Group to acquire shares in the Group. In order Going concern to preserve certain tax benefits, these shares are held in a trust by EES The Group’s business activities, together with the factors likely to affect its Corporate Trustees Limited for participating employees. Whilst these shares future development, performance and position, are set out in the strategic are held in trust, the voting rights attached to them will not be exercised by report. The financial position of the Group, its cashflows, liquidity position the Trustee or the employees for whom they are held. As at 8 September and borrowing facilities are described in the finance review on pages 46 to 2016 (being the latest practical date prior to the date of this report), 0.9% of 49. In addition note 22 to the financial statements includes the Group’s the issued share capital of the Group, less treasury shares, was held by EES objectives, policies and processes for managing its capital; its financial risk Corporate Trustees Limited. In the event of an offer being made to acquire management objectives; details of its financial instruments and hedging these shares the employees are entitled to direct EES Corporate Trustees activities; and its exposures to price risk, credit risk, liquidity risk and cash Limited to accept an offer in respect of the shares held on their behalf. flow risk.

Save As You Earn Scheme Cash generation from the Group’s bus and rail operations was excellent and the balance sheet remains strong. Core financing is provided by a £200m The Group also operates a save as you earn scheme known as The sterling bond securing financing to September 2017 and committed bank Go-Ahead Group Plc 2013 Savings-Related Share Option Scheme facilities of £280.0m originally to July 2019, but subsequent to the year end, (Sharesave), for which the last launch was in February 2016. Under has been extended to July 2021. In July 2014 the £280m facility replaced a Sharesave, all permanent employees who have completed at least six £275.5m February 2016 facility. On 26 August 2016, the Group entered into months’ continuous service with a participating company are invited to make a £200m term loan to provide flexibility on refinancing the £200m sterling monthly savings of between £5 and £50 for three years. At the end of the 7.5 year bond. This facility is available to draw down between 4 September savings term, participants have the choice of their money back, or to 2017 and 29 September 2017. Once drawn down, the facility is available to purchase Go-Ahead Group shares at a 20% discount to the market price the Group with extensions for up to a further 24 months. The directors set at the date of invitation. believe that the Group is well placed to manage its business risks successfully, despite the current uncertain economic outlook. Political donations and expenditure It is the Group’s policy not to make political donations and accordingly no The directors have assessed, in the light of current and anticipated economic such payments were made in the year (2016: £nil). Additionally, the Group conditions, the Group’s ability to continue as a ‘going concern’. The directors did not incur any political expenditure as defined in the Act (2016: £nil). confirm they are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the ‘going concern’ basis in preparing the Annual Employees Report and Accounts. Details of the Group’s employee policies, including those concerning the employment of disabled persons and employee engagement, are provided The directors are also required to provide a broader assessment of viability on pages 32 to 35, within the ‘People’ section. There have been no significant over a longer period, which can be found on page 41. changes to our policies over the year. The directors ‘going concern’ confirmation and ‘viability statement’ have both been considered in accordance with the ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ published by the Financial Reporting Council in September 2014.

106 The Go-Ahead Group plc I Annual Report and Accounts 2016 Directors’ statement of responsibilities The directors are responsible for the maintenance and integrity of the The directors are responsible for preparing the Annual Report and the corporate and financial information included on the Group’s Group financial statements in accordance with applicable United Kingdom corporate website. law and regulations. Company law requires the directors to prepare Group Legislation in the United Kingdom governing the preparation and financial statements for each financial year. Under that law, the directors are dissemination of financial statements may differ from legislation in required to prepare Group financial statements under IFRS as adopted by other jurisdictions. the European Union. Detailed below are statements made by the directors Strategic report Strategic in relation to their responsibilities, disclosure of information to the Group’s Directors’ statement of responsibility under auditors, going concern and management’s report on internal control over financial reporting. the Disclosure and Transparency Rules The Board confirms to the best of its knowledge: Financial statements and accounting records • The financial statements, prepared in accordance with International Under company law the directors must not approve the Group financial Financial Reporting Standards as adopted by the EU, give a true and fair statements unless they are satisfied that they give a true and fair view of the view of the assets, liabilities, financial position and profit or loss of the state of affairs of the Group at the end of the financial year and of the profit Group and the undertakings included in the consolidation taken or loss of the Group for that period. as a whole Governance In preparing the Group financial statements, the directors are required to: • The strategic report includes a fair review of the development and performance of the business and the position of the Group and the • Present fairly the financial position, financial performance and cashflows undertakings included in the consolidation taken as a whole together with of the Group a description of the principal risks and uncertainties that they face • Select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply Directors’ statement under the UK them consistently Corporate Governance Code 2014

• Present information, including accounting policies, in a manner that The Annual Report and Financial Statements, taken as a whole, are fair, Financial statements provides relevant, reliable, comparable and understandable information balanced and understandable and provides the information necessary for • Make judgements and estimates that are reasonable shareholders to assess the Group’s position and performance, business model and strategy. • Provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, Disclosure of information to the auditor other events and conditions on the Group’s financial position and Having made the requisite enquiries, so far as the directors are aware, there financial performance is no relevant audit information (as defined by section 418(3) of the Act of Shareholder information • State whether the Group financial statements have been prepared in which the Group’s auditor is unaware and the directors have taken all the accordance with IFRS as adopted by the European Union steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the Group’s auditor is aware of The directors are responsible for keeping adequate accounting records that that information. are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group, and By order of the Board enable them to ensure that the Group financial statements comply with the Act and Article 4 of the IAS Regulation. They are also responsible for the system of internal control, for safeguarding the assets of the Group and, hence, for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are also responsible for preparing the strategic report, Carolyn Ferguson, directors’ report, including the directors’ remuneration report and the Group Company Secretary corporate governance report, in accordance with the Act and applicable regulations, including the requirements of the Listing Rules and the 8 September 2016 Disclosure and Transparency Rules.

The Go-Ahead Group plc I www.go-ahead.com 107 Independent auditor’s report to the members of The Go-Ahead Group plc

Opinion on financial statements of The Go-Ahead Group plc We have nothing material to add or draw attention to in relation to: In our opinion: • the directors' confirmation on page 42 that they have carried out a • the financial statements give a true and fair view of the state of the robust assessment of the principal risks facing the group, including those group’s and of the parent company’s affairs as at 2 July 2016 and of the that would threaten its business model, future performance, solvency group’s profit for the year then ended; or liquidity; • the group financial statements have been properly prepared in • the disclosures on pages 43-45 that describe those risks and explain accordance with International Financial Reporting Standards (IFRSs) as how they are being managed or mitigated; adopted by the European Union; • the directors’ statement in the Directors’ report on page 106 to the • the parent company financial statements have been properly prepared financial statements about whether they considered it appropriate to in accordance with United Kingdom Generally Accepted Accounting adopt the going concern basis of accounting in preparing them and their Practice, including FRS 101 “Reduced Disclosure Framework”; and identification of any material uncertainties to the group’s ability to continue to do so over a period of at least twelve months from the • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group date of approval of the financial statements; financial statements, Article 4 of the IAS Regulation. • the directors’ explanation on page 41 as to how they have assessed the The financial statements comprise the Consolidated income statement, prospects of the group, over what period they have done so and why Consolidated and Company statements of comprehensive income, they consider that period to be appropriate, and their statement as to Consolidated and Company statements of changes in equity, Consolidated whether they have a reasonable expectation that the group will be able and Company balance sheets, Consolidated cashflow statement and the to continue in operation and meet its liabilities as they fall due over the related Consolidated notes 1 to 28 and Company notes 1 to 18. The period of their assessment, including any related disclosures drawing financial reporting framework that has been applied in the preparation of attention to any necessary qualifications or assumptions. the group financial statements is applicable law and IFRSs as adopted by We agreed with the directors’ adoption of the going concern basis of the European Union. The financial reporting framework that has been accounting and we did not identify any such material uncertainties. applied in the preparation of the parent company financial statements is However, because not all future events or conditions can be predicted, applicable law and United Kingdom Accounting Standards (United this statement is not a guarantee as to the group’s ability to continue as a Kingdom Generally Accepted Accounting Practice), including FRS 101 going concern. “Reduced Disclosure Framework”. Independence Going concern and the directors’ assessment of the We are required to comply with the Financial Reporting Council’s Ethical principal risks that would threaten the solvency or liquidity Standards for Auditors and we confirm that we are independent of the of the group group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the As required by the Listing Rules we have reviewed the directors’ prohibited non-audit services referred to in those standards. statement regarding the appropriateness of the going concern basis of accounting contained within note 1 to the financial statements and the directors’ statement on the longer-term viability of the group contained within the Managing Risk section of the strategic report on page 41.

108 The Go-Ahead Group plc I Annual Report and Accounts 2016 Independent auditor’s report to the members of The Go-Ahead Group plc

Opinion on financial statements of The Go-Ahead Group plc We have nothing material to add or draw attention to in relation to: Our assessment of risks of material misstatement In our opinion: • the directors' confirmation on page 42 that they have carried out a The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in • the financial statements give a true and fair view of the state of the robust assessment of the principal risks facing the group, including those the audit and directing the efforts of the engagement team. group’s and of the parent company’s affairs as at 2 July 2016 and of the that would threaten its business model, future performance, solvency Risk How the scope of our audit responded to the risk group’s profit for the year then ended; or liquidity; Rail franchise compliance and revenue recognition • We have read the key elements of the franchise agreements to understand • the group financial statements have been properly prepared in • the disclosures on pages 43-45 that describe those risks and explain As noted in the Critical Accounting Judgements section on page their critical elements, inform the audit approach and challenge the accounting accordance with International Financial Reporting Standards (IFRSs) as how they are being managed or mitigated; 120 in respect of the three train operating companies (TOCs) a treatments adopted. adopted by the European Union; • the directors’ statement in the Directors’ report on page 106 to the franchise agreement details the arrangements covering entitlement • We have performed a review of all significant assets, provisions and accruals, • the parent company financial statements have been properly prepared financial statements about whether they considered it appropriate to to revenue, certain costs and performance conditions. Due to the and associated revenue or costs recognised, to assess whether their recognition in accordance with United Kingdom Generally Accepted Accounting adopt the going concern basis of accounting in preparing them and their complexity of the arrangements there is a risk that the financial and quantum is appropriately stated, and whether there are any indicators that report Strategic Practice, including FRS 101 “Reduced Disclosure Framework”; and identification of any material uncertainties to the group’s ability to statements do not appropriately reflect the correct revenue and the balances held should no longer be recognised due to the passage of time, costs in terms of completeness, measurement and occurrence, • the financial statements have been prepared in accordance with the continue to do so over a period of at least twelve months from the changes in contractual commitments, or legal requirements. and/or income/penalties that can arise based on the actual requirements of the Companies Act 2006 and, as regards the group date of approval of the financial statements; • We have held meetings with each of the franchise compliance managers to performance of the individual TOC under the franchise agreement. financial statements, Article 4 of the IAS Regulation. • the directors’ explanation on page 41 as to how they have assessed the assess whether there are any new issues of non-compliance or expected non- The financial statements comprise the Consolidated income statement, prospects of the group, over what period they have done so and why compliance, and whether any franchise committed obligations will not Consolidated and Company statements of comprehensive income, they consider that period to be appropriate, and their statement as to be delivered. Consolidated and Company statements of changes in equity, Consolidated whether they have a reasonable expectation that the group will be able • We have tested the schedules prepared by management to source information, and Company balance sheets, Consolidated cashflow statement and the to continue in operation and meet its liabilities as they fall due over the evaluated whether it is compliant with the franchise agreements, and tested the period of their assessment, including any related disclosures drawing related Consolidated notes 1 to 28 and Company notes 1 to 18. The calculations applied including recalculation where relevant. Governance attention to any necessary qualifications or assumptions. financial reporting framework that has been applied in the preparation of • We have held meetings with the Finance Directors and members of the finance the group financial statements is applicable law and IFRSs as adopted by We agreed with the directors’ adoption of the going concern basis of team to assess on a case by case basis the movements in the provisions and the European Union. The financial reporting framework that has been accounting and we did not identify any such material uncertainties. accruals, during the period under review, and challenged management both on applied in the preparation of the parent company financial statements is However, because not all future events or conditions can be predicted, the recognition of new provisions and accruals, and also the continued applicable law and United Kingdom Accounting Standards (United this statement is not a guarantee as to the group’s ability to continue as a recognition of long standing provisions and accruals. Kingdom Generally Accepted Accounting Practice), including FRS 101 going concern. • We have reviewed Board minutes and Board papers to assess whether there is “Reduced Disclosure Framework”. Independence inconsistency in the determination of the provisions and accruals balances or Going concern and the directors’ assessment of the We are required to comply with the Financial Reporting Council’s Ethical any significant judgements which have not been accounted for by management. Financial statements principal risks that would threaten the solvency or liquidity Standards for Auditors and we confirm that we are independent of the • We have reviewed relevant legal documentation and minutes of meetings held of the group group and we have fulfilled our other ethical responsibilities in accordance with the Department for Transport. with those standards. We also confirm we have not provided any of the As required by the Listing Rules we have reviewed the directors’ • We have reviewed the accounts disclosures to assess whether they prohibited non-audit services referred to in those standards. statement regarding the appropriateness of the going concern basis of are appropriate. accounting contained within note 1 to the financial statements and the Rail provisions and accruals • We gained an understanding of each significant accrual or provision, the basis of directors’ statement on the longer-term viability of the group contained This risk relates to the incorrect valuation of contractual and estimate and the range of possible outcomes with the Finance Director and within the Managing Risk section of the strategic report on page 41. relevant members of the finance team. Where possible, we have completed a property related liabilities, in particular third party claims; and Shareholder information dilapidation provisions relating to rolling stock, depots and review of supporting documentation and evidence for the existence of the stations (note 24). obligation and re-performed management’s calculations. Key judgements are the assessment of the recognition criteria in • We assessed whether the provisions meet the criteria for recognition per each individual circumstance and the level of the provision required IAS 37 and whether they have been appropriately classified as provisions or as noted in the Critical Accounting Judgements on page 120. as an accrual. • We assessed whether the third parties used to estimate relevant valuations have the appropriate experience, qualifications and knowledge of the business, and agreed the findings from their surveys into the provision. • We reviewed relevant legal documentation and correspondence with Network Rail. Uninsured liabilities • We have gained an understanding of the Group’s obligations under its insurance This risk relates to the incorrect valuation of insurance related policies with relevant members of the finance team and reviewed the liabilities, in particular uninsured liabilities relating to transport documents to confirm these. incidents. Judgement is required in the assessment of the • We have assessed the self-insurance provision to settle claims for incidents recognition criteria in each individual circumstance and the level which arose prior to the balance sheet date (including those for incidents of the provision required. incurred but not reported) for completeness and accuracy through discussions The application of this accounting treatment requires significant held with the finance team and testing of third party reports. levels of management judgement regarding the level of self- • We have gained a detailed understanding of the methodology used to calculate insurance required and the amount to provide in respect of claims the claims incurred liabilities. incurred but not reported. • We have tested the completeness of the information received and gained a The uninsured claims provision held in the Group financial detailed understanding of the approach used to determine the provision for statements at 2 July 2016 is £42.1m (£41.3m as at 27 June 2015) claims incurred but not received and tested this provision against (see note 24) and is noted in the Critical Accounting Judgements historical trends. on page 120. • We have reviewed group and subsidiary Board minutes, Board papers and held discussions with management to identify any significant matters which should have been considered when creating the provision and to identify any inconsistencies between the minutes and our understanding from the review of provisions performed.

The Go-Ahead Group plc I www.go-ahead.com 109 Independent auditor’s report to the members of The Go-Ahead Group plc continued

Risk How the scope of our audit responded to the risk Accounting for pensions and related disclosure • We have involved our actuarial experts to assess whether the values Given the size of the Group, managing the pension liabilities is complex and used by management’s actuaries for key assumptions at the year-end significant judgement is required in determining the value of the liability are within Deloitte’s acceptable range with a focus on estimations of provided as set out in the Critical Accounting Judgements on page 120. future changes in salaries, inflation, longevity of current and deferred The liabilities of the schemes are highly sensitive to any changes in long- members and the selection of a suitable discount rate. term assumptions year on year which could materially impact the Group’s • We have involved our actuarial experts to assess the appropriateness balance sheet position. of the methodology used by management’s actuaries to calculate the The franchise adjustment also requires judgement under the relevant liabilities for the pension schemes. accounting consideration (IFRIC 14) and is sector specific in the case of the • We tested the membership data utilised by the actuaries to calculate Railway Pension Scheme. the liabilities for the pension scheme. The values and associated disclosures are set out in note 27. • We have reviewed the accounting treatment of the Railway Pension Scheme, and the franchise adjustment applied, for compliance with the Group’s accounting policy and IFRS. • We have assessed the pension disclosures in the financial statements and considered their compliance with the requirements of IAS 19 (revised). Revenue recognition – bus • We have gained an in depth understanding of the process undertaken In the bus division the risk over revenue recognition has been focused on to recognise revenue in the bus businesses with the finance team and whether recognising revenue in relation to concessionary fare income, the associated reviews and controls performed. contract sales and most significantly Quality Incentive Contract premiums in • We evaluated the design and implementation of controls related to London Bus is appropriate. revenue processes to identify any potential areas of risk around the correct recording of revenue. • We have performed detailed testing to supporting documentation of the key revenue balances at each in scope bus business including a focus on the Quality Incentive Contract premium income recognised in London Bus.

Last year the previous auditor’s report included one other risk which is An overview of the scope of our audit not included in our report this year being the carrying value of goodwill Our group audit was scoped by obtaining an understanding of the group which following the impairments charged in the prior year is no longer and its environment, including group-wide controls, and assessing the risks considered to be a significant risk to the audit. of material misstatement at the group level. We have not scoped in the new overseas businesses in Singapore or Germany reflecting that these The description of risks above should be read in conjunction with the were not operational or material to the Group at the balance sheet date. significant issues considered by the Audit Committee discussed on Based on that assessment, we focused our group audit scope primarily on page 75. the audit work at 10 principal locations including all the UK rail businesses These matters were addressed in the context of our audit of the financial which were subject to a full audit. The remaining 2 bus businesses were statements as a whole, and in forming our opinion thereon, and we do subject to desktop review. The locations in scope represent the principal not provide a separate opinion on these matters. business units and account for 98% of the group’s total assets, 99% of the group’s revenue and 100% of the group’s profit before tax with the Our application of materiality businesses subject to desktop review contributing an immaterial loss. The We define materiality as the magnitude of misstatement in the financial locations were selected to provide an appropriate basis for undertaking statements that makes it probable that the economic decisions of a audit work to address the risks of material misstatement identified above. reasonably knowledgeable person would be changed or influenced. We Our audit work at the principal locations was executed at levels of use materiality both in planning the scope of our audit work and in materiality applicable to each individual entity which were lower than evaluating the results of our work. group materiality and ranged from £1m to £2.34m. We determined materiality for the group to be £3.97m, which is below At the parent entity level we also tested the consolidation process and 5% of statutory pre-tax profit, which is considered an area of focus for the carried out analytical procedures to confirm our conclusion that there users of the accounts, and below 2.5% of equity. The previous auditor were no significant risks of material misstatement of the aggregated determined a materiality of £4.38m using 5% of statutory pre-tax profit financial information of the remaining components not subject to audit or before exceptional items as the basis. audit of specified account balances. We agreed with the Audit Committee that we would report to the The group audit team continued to follow a programme of planned visits Committee all audit differences in excess of £78k, as well as differences that has been designed so that either the Senior Statutory Auditor or a below that threshold that, in our view, warranted reporting on qualitative senior member of the group audit team visits each of the locations where grounds. We also report to the Audit Committee on disclosure matters the group audit scope was focussed at least once every year and the most that we identified when assessing the overall presentation of the significant of them at least twice a year. financial statements.

110 The Go-Ahead Group plc I Annual Report and Accounts 2016 Independent auditor’s report to the members of The Go-Ahead Group plc continued

Risk How the scope of our audit responded to the risk Opinion on other matters prescribed by the Companies Respective responsibilities of directors and auditor Accounting for pensions and related disclosure • We have involved our actuarial experts to assess whether the values Act 2006 As explained more fully in the Directors’ Responsibilities Statement, the Given the size of the Group, managing the pension liabilities is complex and used by management’s actuaries for key assumptions at the year-end In our opinion: directors are responsible for the preparation of the financial statements are within Deloitte’s acceptable range with a focus on estimations of significant judgement is required in determining the value of the liability • the part of the Directors’ Remuneration Report to be audited has been and for being satisfied that they give a true and fair view. Our responsibility provided as set out in the Critical Accounting Judgements on page 120. future changes in salaries, inflation, longevity of current and deferred properly prepared in accordance with the Companies Act 2006; and is to audit and express an opinion on the financial statements in The liabilities of the schemes are highly sensitive to any changes in long- members and the selection of a suitable discount rate. accordance with applicable law and International Standards on Auditing • the information given in the Strategic Report and the Directors’ Report term assumptions year on year which could materially impact the Group’s (UK and Ireland). We also comply with International Standard on Quality • We have involved our actuarial experts to assess the appropriateness for the financial year for which the financial statements are prepared is balance sheet position. Control 1 (UK and Ireland). Our audit methodology and tools aim to of the methodology used by management’s actuaries to calculate the consistent with the financial statements. The franchise adjustment also requires judgement under the relevant liabilities for the pension schemes. ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated accounting consideration (IFRIC 14) and is sector specific in the case of the • We tested the membership data utilised by the actuaries to calculate Matters on which we are required to report by exception report Strategic professional standards review team and independent partner reviews. Railway Pension Scheme. the liabilities for the pension scheme. Adequacy of explanations received and accounting records This report is made solely to the company’s members, as a body, in The values and associated disclosures are set out in note 27. • We have reviewed the accounting treatment of the Railway Pension Under the Companies Act 2006 we are required to report to you if, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our Scheme, and the franchise adjustment applied, for compliance with the our opinion: audit work has been undertaken so that we might state to the company’s Group’s accounting policy and IFRS. • we have not received all the information and explanations we require members those matters we are required to state to them in an auditor’s for our audit; or • We have assessed the pension disclosures in the financial statements report and for no other purpose. To the fullest extent permitted by law, and considered their compliance with the requirements of • adequate accounting records have not been kept by the parent we do not accept or assume responsibility to anyone other than the IAS 19 (revised). company, or returns adequate for our audit have not been received company and the company’s members as a body, for our audit work, for Revenue recognition – bus • We have gained an in depth understanding of the process undertaken from branches not visited by us; or this report, or for the opinions we have formed. to recognise revenue in the bus businesses with the finance team and • the parent company financial statements are not in agreement with the Governance In the bus division the risk over revenue recognition has been focused on Scope of the audit of the financial statements whether recognising revenue in relation to concessionary fare income, the associated reviews and controls performed. accounting records and returns. An audit involves obtaining evidence about the amounts and disclosures in contract sales and most significantly Quality Incentive Contract premiums in • We evaluated the design and implementation of controls related to We have nothing to report in respect of these matters. London Bus is appropriate. the financial statements sufficient to give reasonable assurance that the revenue processes to identify any potential areas of risk around the Directors’ remuneration financial statements are free from material misstatement, whether caused correct recording of revenue. Under the Companies Act 2006 we are also required to report if in our by fraud or error. This includes an assessment of: whether the accounting • We have performed detailed testing to supporting documentation of opinion certain disclosures of directors’ remuneration have not been made policies are appropriate to the group’s and the parent company’s the key revenue balances at each in scope bus business including a or the part of the Directors’ Remuneration Report to be audited is not in circumstances and have been consistently applied and adequately focus on the Quality Incentive Contract premium income recognised in agreement with the accounting records and returns. We have nothing to disclosed; the reasonableness of significant accounting estimates made by Financial statements London Bus. report arising from these matters. the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Corporate Governance Statement annual report to identify material inconsistencies with the audited financial Last year the previous auditor’s report included one other risk which is An overview of the scope of our audit Under the Listing Rules we are also required to review part of the statements and to identify any information that is apparently materially not included in our report this year being the carrying value of goodwill Our group audit was scoped by obtaining an understanding of the group Corporate Governance Statement relating to the company’s compliance incorrect based on, or materially inconsistent with, the knowledge which following the impairments charged in the prior year is no longer and its environment, including group-wide controls, and assessing the risks with certain provisions of the UK Corporate Governance Code. We have acquired by us in the course of performing the audit. If we become aware considered to be a significant risk to the audit. of material misstatement at the group level. We have not scoped in the nothing to report arising from our review. of any apparent material misstatements or inconsistencies we consider the new overseas businesses in Singapore or Germany reflecting that these The description of risks above should be read in conjunction with the Our duty to read other information in the Annual Report implications for our report. were not operational or material to the Group at the balance sheet date. significant issues considered by the Audit Committee discussed on Under International Standards on Auditing (UK and Ireland), we are Shareholder information Based on that assessment, we focused our group audit scope primarily on page 75. required to report to you if, in our opinion, information in the annual the audit work at 10 principal locations including all the UK rail businesses report is: These matters were addressed in the context of our audit of the financial which were subject to a full audit. The remaining 2 bus businesses were statements as a whole, and in forming our opinion thereon, and we do subject to desktop review. The locations in scope represent the principal • materially inconsistent with the information in the audited financial not provide a separate opinion on these matters. business units and account for 98% of the group’s total assets, 99% of the statements; or group’s revenue and 100% of the group’s profit before tax with the • apparently materially incorrect based on, or materially inconsistent with, Christopher Powell, FCA (Senior statutory auditor) Our application of materiality businesses subject to desktop review contributing an immaterial loss. The our knowledge of the group acquired in the course of performing our for and on behalf of Deloitte LLP We define materiality as the magnitude of misstatement in the financial locations were selected to provide an appropriate basis for undertaking audit; or Chartered Accountants and Statutory Auditor statements that makes it probable that the economic decisions of a audit work to address the risks of material misstatement identified above. • otherwise misleading. London, United Kingdom reasonably knowledgeable person would be changed or influenced. We Our audit work at the principal locations was executed at levels of In particular, we are required to consider whether we have identified any use materiality both in planning the scope of our audit work and in materiality applicable to each individual entity which were lower than 8 September 2016 inconsistencies between our knowledge acquired during the audit and the evaluating the results of our work. group materiality and ranged from £1m to £2.34m. directors’ statement that they consider the annual report is fair, balanced We determined materiality for the group to be £3.97m, which is below At the parent entity level we also tested the consolidation process and and understandable and whether the annual report appropriately discloses 5% of statutory pre-tax profit, which is considered an area of focus for the carried out analytical procedures to confirm our conclusion that there those matters that we communicated to the audit committee which we users of the accounts, and below 2.5% of equity. The previous auditor were no significant risks of material misstatement of the aggregated consider should have been disclosed. We confirm that we have not determined a materiality of £4.38m using 5% of statutory pre-tax profit financial information of the remaining components not subject to audit or identified any such inconsistencies or misleading statements. before exceptional items as the basis. audit of specified account balances. We agreed with the Audit Committee that we would report to the The group audit team continued to follow a programme of planned visits Committee all audit differences in excess of £78k, as well as differences that has been designed so that either the Senior Statutory Auditor or a below that threshold that, in our view, warranted reporting on qualitative senior member of the group audit team visits each of the locations where grounds. We also report to the Audit Committee on disclosure matters the group audit scope was focussed at least once every year and the most that we identified when assessing the overall presentation of the significant of them at least twice a year. financial statements.

The Go-Ahead Group plc I www.go-ahead.com 111 Consolidated income statement for the year ended 2 July 2016

2016 2015 Notes £m £m Group revenue 4 3,361.3 3,215.2 Operating costs (excluding amortisation, goodwill impairment and exceptional operating costs) 5 (3,240.9) (3,100.5) Intangible asset amortisation and goodwill impairment 13 (3.0) (9.1) Exceptional operating costs 7 – (8.8) Total operating costs (3,243.9) (3,118.4) Group operating profit 117.4 96.8 Group operating profit (before amortisation, goodwill impairment and exceptional operating costs) 120.4 114.7 Finance revenue 4, 8 3.2 2.4 Finance costs 8 (20.8) (20.5) Profit on ordinary activities before taxation 99.8 78.7 Tax expense 9 (18.5) (19.4) Profit for the year from continuing operations 81.3 59.3

Attributable to: Equity holders of the parent 69.7 52.2 Non-controlling interests 11.6 7.1 81.3 59.3 Earnings per share – basic 10 162.3p 121.6p – diluted 10 161.4p 119.5p – adjusted basic* 10 220.5p 181.8p – adjusted diluted* 10 219.3p 178.6p

Dividends paid (pence per share) 11 91.73p 85.60p Final dividend proposed (pence per share) 11 67.52p 63.40p * Adjusted earnings per share is calculated after adjusting for amortisation, goodwill impairment, exceptional operating costs and the incremental impact of IAS 19 (revised) to the extent that they impact earnings attributable to equity shareholders. The year ended 2 July 2016 was a 53 week year compared with the year ended 27 June 2015 which was a 52 week year.

112 The Go-Ahead Group plc I Annual Report and Accounts 2016 Consolidated income statement for the year ended 2 July 2016

2016 2015 The consolidated income statement includes the majority of our income and expenses for the year with the remainder Notes £m £m recorded in the consolidated statement of comprehensive income Group revenue 4 3,361.3 3,215.2 Highlights of the movements in the year are set out below: Operating costs (excluding amortisation, goodwill impairment and exceptional operating costs) 5 (3,240.9) (3,100.5) Intangible asset amortisation and goodwill impairment 13 (3.0) (9.1) Revenue Exceptional operating costs 7 – (8.8) Revenue increased by 4.5% to £3,361.3m (2015: £3,215.2m). The rail operations comprised 74.3% of the total revenue and grew by 4.2% during the Total operating costs (3,243.9) (3,118.4) year to £2,498.0m primarily as a result of a full year of operation of GTR, which took over operation of the First Capital Connect franchise partway through the previous year. Regional bus comprised 11.2% of revenue, growing by 4.4% to £375.7m, and London bus comprised the remaining 14.5%, Group operating profit 117.4 96.8 growing by 6.5% to £487.6m. Divisional performance is shown in note 3. Group operating profit (before amortisation, goodwill impairment and exceptional operating costs) 120.4 114.7

Finance revenue 4, 8 3.2 2.4 Operating profit* report Strategic Finance costs 8 (20.8) (20.5) Overall, the operating profit* increased 5.0% from £114.7m to £120.4m with improved profitability in both rail and bus. The rail business margins Profit on ordinary activities before taxation 99.8 78.7 remained at 1.1%, the regional bus margins improved from 13.0% to 13.2% and London bus decreased marginally from 9.2% to 8.9% as a result of Tax expense 9 (18.5) (19.4) reduced QICs income. Rail profitability is underpinned by cost controls and contract management benefits. Cost control is also a focus of the bus divisions. Profit for the year from continuing operations 81.3 59.3 Intangible asset amortisation and goodwill impairment Attributable to: The intangible amortisation and goodwill impairment charge for the year is £3.0m (2015: £9.1m), of which £3.0m (2015: £4.2m) represents the non- Equity holders of the parent 69.7 52.2 cash cost of amortising software costs, franchise bid costs and customer contracts. The prior year charge included a goodwill impairment charge of Non-controlling interests 11.6 7.1 £4.9m which related to the Go East Anglia bus operations. 81.3 59.3 Exceptional operating items Governance Earnings per share During the year ended 27 June 2015 the Group incurred restructuring costs in its GTR franchise which brings Thameslink and Greater Northern – basic 10 162.3p 121.6p together with Southern and Gatwick Express under one management structure. – diluted 10 161.4p 119.5p – adjusted basic* 10 220.5p 181.8p Finance costs – adjusted diluted* 10 219.3p 178.6p Overall net finance costs are consistent year on year. Tax expense

Dividends paid (pence per share) 11 91.73p 85.60p The tax expense decreased from £19.4m in 2015 to £18.5m. The 2016 effective tax rate is 18.5%. The underlying tax rate in 2015 was 23.2%, excluding Financial statements Final dividend proposed (pence per share) 11 67.52p 63.40p goodwill impairment of £4.9m. In both years the underlying rate is higher than the statutory rate due to non-tax deductible costs such as overseas * Adjusted earnings per share is calculated after adjusting for amortisation, goodwill impairment, exceptional operating costs and the incremental impact of IAS 19 (revised) to the bid costs. extent that they impact earnings attributable to equity shareholders. Adjusted earnings per share The year ended 2 July 2016 was a 53 week year compared with the year ended 27 June 2015 which was a 52 week year. Adjusted earnings per share is calculated after adjusting for amortisation, goodwill impairment and exceptional operating items and the incremental impact of IAS 19 (revised) to the extent that they impact earnings attributable to equity shareholders. Adjusted earnings per share is shown in note 10 and has increased to 220.5p from 181.8p, an increase of 21.3%, largely reflecting increased profit before taxation. * Operating profit before amortisation, goodwill impairment and exceptional operating costs. Shareholder information

The Go-Ahead Group plc I www.go-ahead.com 113 Consolidated statement of comprehensive income for the year ended 2 July 2016

2016 2015 Notes £m £m Profit for the year 81.3 59.3

Other comprehensive income Items that will not be reclassified to profit or loss Remeasurement gains on defined benefit pension plans 27 100.8 24.6 Tax relating to items that will not be reclassified 9 (19.7) (4.9) 81.1 19.7 Items that may subsequently be reclassified to profit or loss Unrealised losses on cashflow hedges (17.4) (36.0) Losses on cashflow hedges taken to income statement – operating costs 28.7 16.2 Tax relating to items that may be reclassified 9 (2.1) 4.0 Foreign exchange gain 0.4 – 9.6 (15.8)

Other comprehensive gains for the year, net of tax 90.7 3.9

Total comprehensive income for the year 172.0 63.2

Attributable to: Equity holders of the parent 147.6 49.4 Non-controlling interests 24.4 13.8 172.0 63.2 The consolidated statement of comprehensive income records all of the income and losses generated for the year Highlights of the movements in the year are set out below: Profit for the year The profit for the year after taxation is £81.3m and includes amounts attributable to equity shareholders and non-controlling interests. Remeasurement of defined benefit pension plans As disclosed in note 27 the remeasurement gains on defined benefit pension plans were £100.8m, which consisted of rail pension plans showing remeasurements of £45.3m and bus pension plans showing remeasurements of £55.5m. Unrealised losses on cashflow hedges The Group manages its exposure to the future cost of diesel through a programme of hedging. At each period end the derivatives used are marked to a market price and the amounts attributable to future periods are revalued through the comprehensive income statement.

114 The Go-Ahead Group plc I Annual Report and Accounts 2016 Consolidated statement of comprehensive income Consolidated statement of changes in equity for the year ended 2 July 2016 for the year ended 2 July 2016

2016 2015 Share Capital Total Non- Notes £m £m Share Reserve for Hedging premium redemption Retained shareholders’ controlling Total Profit for the year 81.3 59.3 capital own shares reserve reserve reserve earnings equity interests equity £m £m £m £m £m £m £m £m £m

At 28 June 2014 72.1 (69.9) (4.2) 1.6 0.7 50.4 50.7 16.4 67.1 Other comprehensive income Profit for the year – – – – – 52.2 52.2 7.1 59.3 Items that will not be reclassified to profit or loss Net movement on hedges (net of tax) – – (15.8) – – – (15.8) – (15.8) Remeasurement gains on defined benefit pension plans 27 100.8 24.6 Remeasurement on defined benefit Tax relating to items that will not be reclassified 9 (19.7) (4.9) retirement plans (net of tax) (note 27) – – – – – 13.0 13.0 6.7 19.7 81.1 19.7 Total comprehensive income – – (15.8) – – 65.2 49.4 13.8 63.2 Items that may subsequently be reclassified to profit or loss Exercise of share options – 1.1 – – – (1.1) – – – report Strategic Unrealised losses on cashflow hedges (17.4) (36.0) Share based payment charge (and Losses on cashflow hedges taken to income statement – operating costs 28.7 16.2 associated tax) (note 6) – – – – – 1.9 1.9 – 1.9 Tax relating to items that may be reclassified 9 (2.1) 4.0 Dividends (note 11) – – – – – (36.7) (36.7) (12.8) (49.5) Foreign exchange gain 0.4 – At 27 June 2015 72.1 (68.8) (20.0) 1.6 0.7 79.7 65.3 17.4 82.7 9.6 (15.8) Profit for the year – – – – – 69.7 69.7 11.6 81.3 Net movement on hedges (net of tax) – – 9.2 – – – 9.2 – 9.2 Other comprehensive gains for the year, net of tax 90.7 3.9 Remeasurement on defined benefit retirement plans (net of tax) (note 27) – – – – – 68.3 68.3 12.8 81.1

Total comprehensive income for the year 172.0 63.2 Foreign exchange gain – – – – – 0.4 0.4 – 0.4 Governance Total comprehensive income – – 9.2 – – 138.4 147.6 24.4 172.0 Attributable to: Exercise of share options – 2.3 – – – (2.3) – – – Equity holders of the parent 147.6 49.4 Share based payment charge Non-controlling interests 24.4 13.8 (and associated tax) (note 6) – – – – – 2.0 2.0 – 2.0 172.0 63.2 Acquisition of own shares – (4.4) – – – – (4.4) – (4.4) Dividends (note 11) – – – – – (39.4) (39.4) (17.8) (57.2) The consolidated statement of comprehensive income records all of the income and losses generated for the year

At 2 July 2016 72.1 (70.9) (10.8) 1.6 0.7 178.4 171.1 24.0 195.1 Financial statements Highlights of the movements in the year are set out below: The consolidated statement of changes in equity shows the movements in equity shareholders’ funds and Profit for the year The profit for the year after taxation is £81.3m and includes amounts attributable to equity shareholders and non-controlling interests. non-controlling interests Equity shareholders’ funds increased from £65.3m to £171.1m as a result of retained profit for the year exceeding dividend payments, and Remeasurement of defined benefit pension plans remeasurement gains on defined benefit retirement plans (net of tax) of £68.3m in the year. As disclosed in note 27 the remeasurement gains on defined benefit pension plans were £100.8m, which consisted of rail pension plans showing Non-controlling interests have increased from £17.4m to £24.0m and consist of the appropriate share of rail profits, plus a relevant proportion of remeasurements of £45.3m and bus pension plans showing remeasurements of £55.5m. remeasurement gains on rail pension schemes, less dividends paid to non-controlling interests during the year.

Unrealised losses on cashflow hedges Shareholder information The Group manages its exposure to the future cost of diesel through a programme of hedging. At each period end the derivatives used are marked to a market price and the amounts attributable to future periods are revalued through the comprehensive income statement.

The Go-Ahead Group plc I www.go-ahead.com 115 Consolidated balance sheet as at 2 July 2016

2016 2015 Notes £m £m Assets Non-current assets Property, plant and equipment 12 494.3 437.4 Intangible assets 13 82.8 84.7 Trade and other receivables 17 1.6 0.8 Other financial assets 23 0.2 – Deferred tax assets 9 4.2 11.9 583.1 534.8 Current assets Inventories 16 18.3 17.9 Trade and other receivables 17 337.0 260.1 Other financial assets 23 0.6 – Cash and cash equivalents 18 636.3 604.2 992.2 882.2 Assets classified as held for sale 15 0.8 6.0 Total assets 1,576.1 1,423.0 Liabilities Current liabilities Trade and other payables 19 (872.5) (772.9) Other financial liabilities 23 (10.3) (19.1) Interest-bearing loans and borrowings 20 – 0.7 Current tax liabilities 9 (18.9) (14.9) Provisions 24 (32.0) (75.4) (933.7) (881.6) Non-current liabilities Interest-bearing loans and borrowings 20 (312.4) (310.2) Retirement benefit obligations 27 (2.7) (59.5) Other financial liabilities 23 (4.1) (5.5) Deferred tax liabilities 9 (50.1) (46.1) Other liabilities 19 (4.3) (5.2) Provisions 24 (73.7) (32.2) (447.3) (458.7) Total liabilities (1,381.0) (1,340.3) Net assets 195.1 82.7 Capital & reserves Share capital 72.1 72.1 Reserve for own shares (70.9) (68.8) Hedging reserve (10.8) (20.0) Share premium reserve 1.6 1.6 Capital redemption reserve 0.7 0.7 Retained earnings 178.4 79.7 Total shareholders’ equity 171.1 65.3 Non-controlling interests 24.0 17.4 Total equity 195.1 82.7

The financial statements were approved by the Board of Directors on 8 September 2016 and were signed on its behalf by:

Andrew Allner, Patrick Butcher, Chairman Group Chief Financial Officer

116 The Go-Ahead Group plc I Annual Report and Accounts 2016 Consolidated balance sheet as at 2 July 2016

2016 2015 The consolidated balance sheet shows all of our assets and liabilities at the year end Notes £m £m Further details of the major movements of our assets and liabilities in the year are set out below: Assets Non-current assets Assets Property, plant and equipment 12 494.3 437.4 Property, plant and equipment Intangible assets 13 82.8 84.7 Overall, the property, plant and equipment totalled £494.3m, £56.9m up on the prior year, with the vast majority held in the bus division in freehold Trade and other receivables 17 1.6 0.8 land and buildings and bus vehicles. During the year the Group spent £113.9m on assets, £96.1m in the bus division and £17.8m in the rail division; Other financial assets 23 0.2 – offsetting this were depreciation charges of £55.2m, £47.8m in bus and £7.4m in rail. Deferred tax assets 9 4.2 11.9 Intangible assets 583.1 534.8 Of the total intangible balance of £82.8m, goodwill on the acquisition of bus businesses represents £75.9m, with no additions during the year. Additions report Strategic Current assets during the year comprised £0.7m of software costs, and acquisitions comprised £0.4m of customer contracts in the bus business. Amortisation during Inventories 16 18.3 17.9 the year totalled £3.0m. Trade and other receivables 17 337.0 260.1 Other current assets Other financial assets 23 0.6 – The Group’s current assets totalled £992.2m, up £110.0m on the prior year. Of this increase, £32.1m was in cash and cash equivalents and £76.9m was Cash and cash equivalents 18 636.3 604.2 in trade and other receivables, mainly held in the rail business. 992.2 882.2 Assets classified as held for sale 15 0.8 6.0 Assets held for sale Assets held for sale of £0.8m are made up of property, plant and equipment. Total assets 1,576.1 1,423.0

Liabilities Trade and other payables Governance Current liabilities Trade and other payables have increased by £99.6m to £872.5m, mainly attributable to the rail business. Trade and other payables 19 (872.5) (772.9) Other financial liabilities Other financial liabilities 23 (10.3) (19.1) Included in current liabilities is £10.3m and in non-current liabilities is £4.1m which represent the mark to market value of the fuel hedges, split between Interest-bearing loans and borrowings 20 – 0.7 those due within one year and those due in more than one year. There are also other financial assets included in current assets of £0.6m and non- Current tax liabilities 9 (18.9) (14.9) current assets of £0.2m, also representing the mark to market value of the fuel hedges. Provisions 24 (32.0) (75.4) Non-current interest bearing loans and borrowings

(933.7) (881.6) Non-current interest bearing loans and borrowings totalled £312.4m, up from £310.2m in 2015. Principal balances within this amount are a corporate Financial statements Non-current liabilities bond of £200m and amounts drawn on our revolving credit facility of £113.0m offset by deferred debt issue costs. Interest rates and movements on Interest-bearing loans and borrowings 20 (312.4) (310.2) these balances are shown in full in note 20. Retirement benefit obligations 27 (2.7) (59.5) Retirement benefit obligations Other financial liabilities 23 (4.1) (5.5) Further details of the retirement benefit obligations in both bus and rail are shown in note 27. The deficit on the bus schemes total £2.7m and Deferred tax liabilities 9 (50.1) (46.1) represents the excess of future liabilities compared to current assets in the pension fund. This deficit is primarily being addressed using an asset backed Other liabilities 19 (4.3) (5.2) off balance sheet funding arrangement agreed with the scheme trustees. The rail deficit is £nil as the ongoing responsibility for the deficit remains with Provisions 24 (73.7) (32.2) DfT beyond each franchise term.

(447.3) (458.7) Shareholder information Provisions Total liabilities (1,381.0) (1,340.3) As shown in note 24, the Group provides for both uninsured claims and for franchise commitments including property and rolling stock dilapidations. Net assets 195.1 82.7 The total provision for uninsured claims of £42.1m is higher than in 2015. Franchise commitments are lower than prior year at £60.1m. The Group Capital & reserves engages with external third party professionals to assist in the calculation of these provisions. Share capital 72.1 72.1 Total equity Reserve for own shares (70.9) (68.8) Movements in equity and reserves are described in the commentary on the consolidated statement of changes in equity. Hedging reserve (10.8) (20.0) Share premium reserve 1.6 1.6 Capital redemption reserve 0.7 0.7 Retained earnings 178.4 79.7 Total shareholders’ equity 171.1 65.3 Non-controlling interests 24.0 17.4 Total equity 195.1 82.7

The financial statements were approved by the Board of Directors on 8 September 2016 and were signed on its behalf by:

Andrew Allner, Patrick Butcher, Chairman Group Chief Financial Officer

The Go-Ahead Group plc I www.go-ahead.com 117 Consolidated cashflow statement for the year ended 2 July 2016

2016 2015 Notes £m £m Profit after tax for the year 81.3 59.3 Net finance costs 8 17.6 18.1 Tax expense 9 18.5 19.4 Depreciation of property, plant and equipment 12 55.2 70.5 Amortisation of intangible assets 13 3.0 4.2 Impairment of goodwill 13 – 4.9 Profit on sale of assets held for sale (0.7) (0.4) Loss on sale of property, plant and equipment 0.7 – Share based payment charges 6 2.2 1.6 Difference between pension contributions paid and amounts recognised in the income statement 41.8 22.0 Sale of assets held for disposal – 1.5 (Increase)/decrease in inventories (0.4) 3.0 Increase in trade and other receivables (76.8) (3.3) Increase in trade and other payables 99.0 232.1 Movement in provisions (4.3) (1.5) Cashflow generated from operations 237.1 431.4 Taxation paid 9 (24.8) (20.3) Net cashflows from operating activities 212.3 411.1 Cashflows from investing activities Interest received 3.2 2.3 Proceeds from sale of property, plant and equipment 2.3 0.5 Proceeds from sale of assets held for disposal 5.9 – Purchase of property, plant and equipment (113.9) (42.3) Purchase of intangible assets (0.7) (6.1) Net cash transfer on handover of rail franchise 18 – 34.8 Purchase of businesses 14 (0.5) (0.4) Repayment of funding for rolling stock procurement – (68.6) Sale of rolling stock – 68.6 Repayments from US joint venture – 1.8 Net cashflows used in investing activities (103.7) (9.4) Cashflows from financing activities Interest paid (16.2) (16.6) Dividends paid to members of the parent 11 (39.4) (36.7) Dividends paid to non-controlling interests (17.8) (12.8) Payment to acquire own shares (4.4) – Foreign exchange gain 0.4 – Repayment of borrowings – (122.5) Proceeds from borrowings 2.0 111.0 Payment of finance lease and hire purchase liabilities (1.1) (1.7) Net cash outflows on financing activities (76.5) (79.3) Net increase in cash and cash equivalents 32.1 322.4 Cash and cash equivalents at 27 June 2015 18 604.2 281.8 Cash and cash equivalents at 2 July 2016 18 636.3 604.2

118 The Go-Ahead Group plc I Annual Report and Accounts 2016

Consolidated cashflow statement for the year ended 2 July 2016

2016 2015 The consolidated cashflow statement shows the cashflows from operating, investing and financing activities for the year Notes £m £m Profit after tax for the year 81.3 59.3 Net cash/debt Net finance costs 8 17.6 18.1 Closing adjusted net debt was £239.3m, a positive movement of £5.4m from opening adjusted net debt of £244.7m. This has been achieved as the Tax expense 9 18.5 19.4 result of increased profitability. Depreciation of property, plant and equipment 12 55.2 70.5 Cashflow reconciliation Amortisation of intangible assets 13 3.0 4.2 A reconciliation of cash generated by operations to free cashflow and net debt, two non-GAAP measures used by management, is shown below. Impairment of goodwill 13 – 4.9 2016 2015 Increase/(decrease) Profit on sale of assets held for sale (0.7) (0.4) Summary cashflow £m £m £m 1 Loss on sale of property, plant and equipment 0.7 – EBITDA 212.6 205.2 7.4 report Strategic Share based payment charges 6 2.2 1.6 Working capital/other items (excluding restricted cash movements) (0.2) (59.3) 59.1 Difference between pension contributions paid and amounts recognised in the income statement 41.8 22.0 Cashflow generated from operations 212.4 145.9 66.5 Sale of assets held for disposal – 1.5 Tax paid (24.8) (20.3) (4.5) (Increase)/decrease in inventories (0.4) 3.0 Net interest paid (13.0) (14.3) 1.3 Increase in trade and other receivables (76.8) (3.3) Net capital investment (106.4) (47.9) (58.5) Increase in trade and other payables 99.0 232.1 Free cashflow 68.2 63.4 4.8 Movement in provisions (4.3) (1.5) Net acquisitions (0.5) (0.4) (0.1) Cashflow generated from operations 237.1 431.4 Joint venture repayment – 1.8 (1.8)

Taxation paid 9 (24.8) (20.3) Other (0.7) – (0.7) Governance Net cashflows from operating activities 212.3 411.1 Payments to acquire own shares (4.4) – (4.4) Cashflows from investing activities Dividends paid (57.2) (49.5) (7.7) Interest received 3.2 2.3 Decrease in adjusted net debt2 5.4 15.3 (9.9) Proceeds from sale of property, plant and equipment 2.3 0.5 Opening adjusted net debt2 (244.7) (260.0) n/a Proceeds from sale of assets held for disposal 5.9 – Closing adjusted net debt2 (239.3) (244.7) n/a Purchase of property, plant and equipment (113.9) (42.3) 1. Operating profit before interest, tax, depreciation, amortisation, goodwill impairment, exceptional operating costs and incremental impact of IAS 19 (revised). Purchase of intangible assets (0.7) (6.1) 2. Adjusted net debt represents net cash less restricted cash. Financial statements Net cash transfer on handover of rail franchise 18 – 34.8 Purchase of businesses 14 (0.5) (0.4) EBITDA increased by £7.4m or 3.6% to £212.6m through increased profitability across all three divisions. Repayment of funding for rolling stock procurement – (68.6) Negative working capital after adjusting for restricted cash in 2015 was predominantly in the rail business and reflects changes in the London Midland Sale of rolling stock – 68.6 and Southeastern franchise agreements. Repayments from US joint venture – 1.8 Capital expenditure, net of sale proceeds, was £58.5m higher in the year at £106.4m (2015: £47.9m) predominantly due to new bus vehicle purchases Net cashflows used in investing activities (103.7) (9.4) in both the regional bus and London fleet. Cashflows from financing activities

Interest paid (16.2) (16.6) Shareholder information Dividends paid to members of the parent 11 (39.4) (36.7) Dividends paid to non-controlling interests (17.8) (12.8) Payment to acquire own shares (4.4) – Foreign exchange gain 0.4 – Repayment of borrowings – (122.5) Proceeds from borrowings 2.0 111.0 Payment of finance lease and hire purchase liabilities (1.1) (1.7) Net cash outflows on financing activities (76.5) (79.3) Net increase in cash and cash equivalents 32.1 322.4 Cash and cash equivalents at 27 June 2015 18 604.2 281.8 Cash and cash equivalents at 2 July 2016 18 636.3 604.2

The Go-Ahead Group plc I www.go-ahead.com 119 Critical accounting judgements and key sources of estimation uncertainty

The preparation of the financial statements requires management to make Retirement benefit obligations judgements, estimates and assumptions. Although these judgements and The measurement of defined benefit pension obligations requires the estimates are based on management’s best knowledge, actual results estimation of future changes in salaries, inflation, longevity of current and ultimately may differ from these estimates. deferred members and the selection of a suitable discount rate, as set out The key sources of estimation uncertainty that have a significant risk of in note 27. The Group engages Willis Towers Watson, a global causing material adjustments to the carrying value of assets and liabilities professional services company whose specialisms include actuarial advice, within the next financial year are in relation to: to support the process of establishing reasonable bases for all of these estimates, to ensure they are appropriate to the Group’s particular Contract and franchise accounting circumstances. Management also benchmark these assumptions on a The commercial entities in the UK rail industry were created at the time of periodic basis with other professional advisors such as privatisation and the relationships between them is governed by a number PricewaterhouseCoopers. of contracts between the major participants, the DfT, Network Rail and train operating companies. These contracts include detailed performance Impairment testing regimes which determine the allocation of financial responsibility relating IFRS require management to review for impairment if events or changes in to the attribution of delays. The processes for attribution, whilst well circumstances indicate that carrying values may not be recoverable. In understood, require detailed assessment and can take significant time to addition the measurement and impairment reviews of indefinite life resolve, particularly in unusual circumstances. intangible assets requires estimation of the net present value of future cashflows including: The Group makes provision for income and costs relating to performance regimes and contractual obligations relating to operating delays caused by • Growth in profitability and EBITDA adjusted for risk factors appropriate Network Rail, or caused by our own operating companies. This process to each business can be based primarily on previous experience of settling such claims, or, • Future growth rates in certain circumstances based on management’s view of the most likely • Timing of future cash outflows such as capital items required outcome of individual claims. The Group has significant internal expertise to assess and manage these aspects of the agreements and the issues • The selection of a suitable discount rate adjusted for risk factors relating to delay attribution to enable management to assess the most appropriate to the Group probable outcomes, nonetheless significant judgements are required, No significant impairments arose in the current year. The considerations which can have material impacts on the financial statements. applied in the review for impairment of goodwill balances are detailed in Accordingly judgements in these and other areas are made on a note 13. continuing basis with regard to amounts due and the recoverable carrying The following are the critical judgements, apart from those involving value of related assets and liabilities arising from franchises and other estimations (as detailed above), that the directors have made in the contracts. Regular reviews are performed on the expected outcome of process of applying the Group’s accounting policies and that have these arrangements, which require assessments and judgements relating the most significant effect on the amounts recognised in the to the expected level of revenues and costs. Contract and franchise financial statements: accounting is specific to the rail business disclosed in the segmental Exceptional operating costs analysis in note 3. In certain years the Group presents as exceptional operating costs on the Measurement of franchise commitments face of the income statement, material items of revenue or expense The measurement of franchise commitments, comprising dilapidation which, because of the size or the nature and expected infrequency of the provisions on rolling stock, depots and stations and also income claims events giving rise to them, merit separate presentation to allow better from other rail franchise operators is set out in note 24. Significant understanding of financial performance. The determination of whether elements of the provisions required are subject to interpretation of items merit treatment as exceptional in a particular year is therefore a franchise agreements and rolling stock agreements. The Group has matter of judgement. significant internal expertise to assess and manage these aspects of the Accounting for the rail pension schemes agreements and to enable management to assess the most probable The train operating companies participate in the RPS, a defined benefit outcomes. Where appropriate, and specifically in assessing dilapidation pension scheme which covers the whole of the UK rail industry. This is provisions, this process is supported by valuations from professional partitioned into sections and the Group is responsible for the funding of external advisors to support provision levels. these schemes whilst it operates the relevant franchise. In contrast to the Uninsured claims pension schemes operated by most businesses the RPS is a shared cost The measurement of uninsured liabilities is based on an assessment of the scheme which means that costs are formally shared 60% employer 40% expected settlement of known claims and an estimate of the cost of employee. The total surplus or deficit recorded is adjusted by way of a claims not yet reported to the Group, as detailed in note 24. In order to ‘franchise adjustment’, which includes an assessment of surpluses or deficits assess the appropriate level of provisions the Group engages with its from future contributions, which is that portion of the deficit or surplus brokers and claims handlers to ensure external expertise is adequately projected to exist at the end of the franchise which the Group will not be factored in to the provision for known claims. required to fund or benefit from.

120 The Go-Ahead Group plc I Annual Report and Accounts 2016 Critical accounting judgements and key sources of estimation uncertainty Notes to the consolidated financial statements

The preparation of the financial statements requires management to make Retirement benefit obligations 1. Authorisation of financial statements and statement of Non-controlling interests represent the equity interests not held by judgements, estimates and assumptions. Although these judgements and The measurement of defined benefit pension obligations requires the compliance with IFRSs the Group in Govia Limited, a 65% owned subsidiary, and are presented estimates are based on management’s best knowledge, actual results estimation of future changes in salaries, inflation, longevity of current and The consolidated financial statements of The Go-Ahead Group plc within equity in the consolidated balance sheet, separately from ultimately may differ from these estimates. deferred members and the selection of a suitable discount rate, as set out (the Group) for the year ended 2 July 2016 were authorised for issue by shareholders’ equity. The key sources of estimation uncertainty that have a significant risk of in note 27. The Group engages Willis Towers Watson, a global the Board of directors on 8 September 2016 and the balance sheet was Joint operations represent the 50% equity interest held by the Group in causing material adjustments to the carrying value of assets and liabilities professional services company whose specialisms include actuarial advice, signed on the Board’s behalf by Andrew Allner and Patrick Butcher. The repsect of On Track Retail Limited, and are currently immaterial. within the next financial year are in relation to: to support the process of establishing reasonable bases for all of these Go-Ahead Group plc is a public limited company that is incorporated, estimates, to ensure they are appropriate to the Group’s particular domiciled and has its registered office in England and Wales. The Group’s Joint arrangements Contract and franchise accounting circumstances. Management also benchmark these assumptions on a ordinary shares are publicly traded on the London Stock Exchange and it A joint arrangement is defined as an arrangement of which two or more The commercial entities in the UK rail industry were created at the time of periodic basis with other professional advisors such as is not under the control of any single shareholder. parties have joint control and rights to the net assets. Joint control is privatisation and the relationships between them is governed by a number the contractually agreed sharing of control, which exists only when report Strategic PricewaterhouseCoopers. The consolidated financial statements of the Group have been prepared of contracts between the major participants, the DfT, Network Rail and decisions about the relevant activities require unanimous consent of the in accordance with International Financial Reporting Standards (IFRSs) as train operating companies. These contracts include detailed performance Impairment testing parties sharing control. Interest in joint arrangements are accounted for adopted by the European Union (EU) as they apply to the consolidated regimes which determine the allocation of financial responsibility relating IFRS require management to review for impairment if events or changes in as either a joint venture or a joint operation in accordance with IFRS 11 financial statements of the Group for the year ended 2 July 2016, and to the attribution of delays. The processes for attribution, whilst well circumstances indicate that carrying values may not be recoverable. In ‘Joint Arrangements’. addition the measurement and impairment reviews of indefinite life applied in accordance with the provisions of the Companies Act 2006. understood, require detailed assessment and can take significant time to A joint arrangement is accounted for as a joint venture when the Group, intangible assets requires estimation of the net present value of future The Group is required to comply with IFRS’s under IAS 1 Presentation of resolve, particularly in unusual circumstances. along with other parties have joint control and rights to the net assets of cashflows including: Financial Statements, except in extremely rare circumstances where The Group makes provision for income and costs relating to performance management concludes that compliance would be so misleading that it the arrangement. Joint ventures are equity accounted in accordance with • Growth in profitability and EBITDA adjusted for risk factors appropriate regimes and contractual obligations relating to operating delays caused by would conflict with the objective to ‘present fairly’ its financial statements. IAS 28 ‘Investments in associates and joint ventures’ (revised). A joint Network Rail, or caused by our own operating companies. This process to each business arrangement is accounted for as a joint operation when the Group, along On that basis, the Group has departed from the requirements of IAS 19 Governance can be based primarily on previous experience of settling such claims, or, • Future growth rates Employee Benefits (revised) and has accounted for its contractual but not with other parties have joint control of the arrangement, rights to the in certain circumstances based on management’s view of the most likely • Timing of future cash outflows such as capital items required legal obligations for the Railways Pension Scheme (RPS) under the terms assets and obligations for the liabilities relating to the arrangement. Joint outcome of individual claims. The Group has significant internal expertise of its UK rail franchise agreements. Details of the background and rationale operations are accounted for by including the Group’s share of the assets, • The selection of a suitable discount rate adjusted for risk factors to assess and manage these aspects of the agreements and the issues for this departure are provided in note 27. liabilities, income and expense on a line by line basis. relating to delay attribution to enable management to assess the most appropriate to the Group The financial statements have been prepared on a going concern basis as Revenue recognition probable outcomes, nonetheless significant judgements are required, No significant impairments arose in the current year. The considerations disclosed in detail on page 106. Revenue is recognised to the extent that it is probable that the income which can have material impacts on the financial statements. applied in the review for impairment of goodwill balances are detailed in note 13. will flow to the Group and the value can be reliably measured. Revenue

Accordingly judgements in these and other areas are made on a 2. Summary of significant accounting policies is measured at the fair value of the consideration received or receivable, Financial statements continuing basis with regard to amounts due and the recoverable carrying The following are the critical judgements, apart from those involving Basis of preparation excluding discounts, rebates, VAT and other sales taxes or duty. value of related assets and liabilities arising from franchises and other estimations (as detailed above), that the directors have made in the contracts. Regular reviews are performed on the expected outcome of process of applying the Group’s accounting policies and that have This note details the accounting policies which have been applied in the Rendering of services these arrangements, which require assessments and judgements relating the most significant effect on the amounts recognised in the Group’s consolidated financial statements. New accounting standards The revenue of the Group comprises income from road passenger to the expected level of revenues and costs. Contract and franchise financial statements: and interpretations which require adoption in future years have also transport and rail passenger transport. accounting is specific to the rail business disclosed in the segmental been listed and our current view of the impact they will have on Exceptional operating costs Bus revenue comprises contractual income from Transport for London analysis in note 3. financial reporting. In certain years the Group presents as exceptional operating costs on the (‘TfL’) in London bus and amounts receivable generated from ticket The financial statements are prepared under the historical cost convention, sales and revenue generated from services provided on behalf of local Measurement of franchise commitments face of the income statement, material items of revenue or expense as modified by the fair value of financial instruments. transport authorities. Shareholder information The measurement of franchise commitments, comprising dilapidation which, because of the size or the nature and expected infrequency of the provisions on rolling stock, depots and stations and also income claims events giving rise to them, merit separate presentation to allow better The consolidated financial statements are presented in pounds sterling Rail revenue comprises amounts based principally on agreed models of from other rail franchise operators is set out in note 24. Significant understanding of financial performance. The determination of whether and all values are rounded to the nearest one hundred thousand route usage, by Railway Settlement Plan Limited (which administers the elements of the provisions required are subject to interpretation of items merit treatment as exceptional in a particular year is therefore a (£0.1m) except when otherwise indicated. income allocation system within the UK rail industry), in respect of franchise agreements and rolling stock agreements. The Group has matter of judgement. As noted above, the Group has taken the decision to depart from the passenger receipts and other related services such as rolling stock significant internal expertise to assess and manage these aspects of the requirements of IAS 19 (revised) so as to present fairly its financial maintenance and commission on tickets sold. In addition, franchise subsidy Accounting for the rail pension schemes agreements and to enable management to assess the most probable performance, position and cashflows in respect of its obligation for receipts from the DfT and local Passenger Transport Executives (PTEs) The train operating companies participate in the RPS, a defined benefit outcomes. Where appropriate, and specifically in assessing dilapidation the RPS. are treated as revenue, whereas franchise premium payments to the DfT pension scheme which covers the whole of the UK rail industry. This is provisions, this process is supported by valuations from professional are recognised in operating costs. In relation to the GTR franchise, partitioned into sections and the Group is responsible for the funding of New standards external advisors to support provision levels. passenger revenue is collected and remitted to the DfT net of these schemes whilst it operates the relevant franchise. In contrast to the The following new standards or interpretations are mandatory for the first management charges payable by DfT as revenue. Uninsured claims pension schemes operated by most businesses the RPS is a shared cost time for the financial year ending 2 July 2016: Revenue is recognised by reference to the stage of completion of the The measurement of uninsured liabilities is based on an assessment of the scheme which means that costs are formally shared 60% employer 40% • IAS 19 Defined Benefit Plans: Employee Contributions (amendment) customer’s journey or for other services based on the proportion of expected settlement of known claims and an estimate of the cost of employee. The total surplus or deficit recorded is adjusted by way of a • Annual Improvements to IFRS’s 2010-2012 Cycle services provided. The attributable share of season ticket or travel card claims not yet reported to the Group, as detailed in note 24. In order to ‘franchise adjustment’, which includes an assessment of surpluses or deficits income is deferred within liabilities and released to the income statement assess the appropriate level of provisions the Group engages with its from future contributions, which is that portion of the deficit or surplus • Annual Improvements to IFRS’s 2011-2013 Cycle over the life of the relevant season ticket or travel card. brokers and claims handlers to ensure external expertise is adequately projected to exist at the end of the franchise which the Group will not be Adoption of these new standards and interpretations had no material factored in to the provision for known claims. required to fund or benefit from. impact on the financial position or reported performance of the Group. Rental income Rental income is generated from rental of surplus properties and Basis of consolidation subleasing of rolling stock and railway infrastructure access. It is accounted The consolidated financial statements comprise the financial statements for on a straight-line basis over the lease term. of The Go-Ahead Group plc and its subsidiaries as at 2 July 2016. Subsidiaries are consolidated from the date on which control is Profit and revenue sharing/support agreements transferred to the Group and cease to be consolidated from the date on The rail companies have certain revenue and profit sharing agreements which control is transferred out of the Group. The financial statements with the DfT. An accrual is made within amounts payable to central of subsidiaries for use in the consolidation are prepared for the same government for the estimated cost to the Group of the relevant amounts reporting year as the parent company and are based on consistent accrued at the balance sheet date. Payments are charged to accounting policies. All intra-group balances and transactions, including operating costs. unrealised profits arising from intra-group transactions, have been Revenue support is provided by the DfT typically in the last two years eliminated in full. of a franchise. Receipts are shown in revenue.

The Go-Ahead Group plc I www.go-ahead.com 121 Notes to the consolidated financial statements continued

2. Summary of significant accounting policies continued Exceptional operating costs The Group presents as exceptional operating costs items on the face of Property, plant and equipment the income statement, material items of revenue or expense which, Property, plant and equipment is stated at cost or deemed cost on because of the size or the nature and expected infrequency of the events transition to IFRSs less accumulated depreciation and any impairment in giving rise to them, merit separate presentation to allow better value. Freehold land is not depreciated. understanding of financial performance. Assets held under finance leases are depreciated over the shorter of their expected useful lives and the lease terms. Finance revenue Interest on deposits is accrued on a time basis, by reference to the Residual values and useful economic lives are reviewed annually. principal outstanding and at the effective interest rate applicable. Depreciation is charged on all addtions to, or disposals of, depreciating assets in the year of purchase or disposal and over its expected useful life Interest-bearing loans and borrowings as follows: Debt is initially stated at the amount of the net proceeds, being the fair Leasehold land and buildings The life of the lease value of the consideration received after deduction of issue costs. Following initial recognition the carrying amount is measured at amortised Freehold buildings Over 50 to 100 years cost using the effective interest method. Amortisation of liabilities and any Bus vehicles Over 8 to 15 years gains and losses arising on the repurchase, settlement or other de- Plant and equipment Over 3 to 15 years recognition of debt are recognised directly in the income statement. The carrying values of items of property, plant and equipment are Leases reviewed for impairment when events or changes in circumstances Assets held under finance leases, which are leases where substantially all of indicate the carrying value may not be recoverable. Any impairment in the risks and rewards of ownership of the asset have passed to the Group, value is recognised immediately in the income statement. and hire purchase contracts are capitalised in the balance sheet, with Government grants a corresponding liability being recognised, and are depreciated over Government grants are recognised at their fair value where there is the shorter of their useful lives and the lease terms. reasonable assurance that the grant will be received and all attaching The capital elements of future obligations under leases and hire purchase conditions will be complied with. When the grant relates to an expense contracts are included as liabilities in the balance sheet. item, it is recognised in operating costs within the income statement over The interest element of the rental obligations is charged to the income the period necessary to match on a systematic basis to the costs that it is statement over the periods of the leases and hire purchase contracts intended to compensate. Where the grant relates to a non-current asset, and represents a constant proportion of the balance of capital value is credited to a deferred income account and is released to the repayments outstanding. income statement over the expected useful life of the relevant asset. Leases where a significant proportion of the risks and rewards of Franchise bid costs ownership are retained by the lessor are classified as operating leases. A key part of the Group’s activities is the process of bidding for and Rentals payable under operating leases, and the amortisation of lease securing franchises, principally to operate rail services in the UK. All incentives and initial direct costs in securing leases, are charged to the franchise bid costs incurred prior to achieving preferred bidder status are income statement on a straight-line basis over the lease term. treated as an expense in the income statement irrespective of the ultimate Taxation outcome of the bid. Directly attributable, incremental costs incurred after Current tax assets and liabilities are measured at the amount expected to achieving preferred bidder status or entering into a franchise extension are be recovered from or paid to the taxation authorities on an undiscounted capitalised as an intangible asset and amortised over the life of the basis at the tax rates that are expected to apply when the related asset is franchise/franchise extension. realised or the liability is settled, based on tax rates and tax laws that have Share based payment transactions been enacted or substantively enacted at the balance sheet date. The cost of options granted to employees is measured by reference to the fair Deferred tax is provided, using the liability method, on temporary value at the date at which they are granted, determined by an external differences at the balance sheet date between the tax base of assets and valuation using an appropriate pricing model. In granting equity-settled options, liabilities for taxation purposes and their carrying amounts in the financial conditions are linked to some or all of the following: the price of the shares of statements. It is provided for on all temporary differences, except: The Go-Ahead Group plc (market conditions); conditions not related to • On the initial recognition of goodwill or of an asset or liability in performance or service (non-vesting conditions); performance conditions (a a transaction that is not a business combination and, at the time of vesting condition); and service conditions (a vesting condition). the transaction, affects neither the accounting profit nor taxable profit The cost of options is recognised in the income statement over the or loss; and period from grant to vesting date, being the date on which the relevant • In respect of taxable temporary differences associated with investments employees become fully entitled to the award, with a corresponding in subsidiaries where the timing of the reversal of the temporary increase in equity. The cumulative expense recognised at each reporting differences can be controlled and it is probable that the temporary date reflects the extent to which the period to vesting has expired and differences will not reverse in the foreseeable future. the directors’ best estimate of the number of options that will ultimately vest or, in the case of an instrument subject to a market or non-vesting Deferred tax assets are only recognised to the extent that it is probable condition, be treated as vesting as described above. This includes any that the temporary differences will be reversed in the foreseeable future award where non-vesting conditions within the control of the Group or and taxable profit will be available to allow all or part of the deferred the employee are not met. income tax asset to be utilised. The carrying amount of deferred tax assets No cost is recognised for awards that do not ultimately vest, except for is reviewed at each balance sheet date and reduced to the extent that it is awards where vesting is conditional upon a market or non-vesting no longer probable that sufficient taxable profit will be available to allow condition. These are treated as vesting irrespective of whether or not the all or part of the deferred income tax asset to be utilised. market or non-vesting condition is satisfied, provided that all other Tax relating to items recognised outside the income statement is performance and/or service conditions are satisfied. Where an equity- recognised in other comprehensive income or directly in equity in settled award is cancelled, it is treated as if it had vested on the date of correlation with the underlying transaction. Otherwise, tax is recognised in cancellation, and any cost not yet recognised for the award is the income statement. recognised immediately.

122 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

2. Summary of significant accounting policies continued Exceptional operating costs Software to each of the Group’s cash-generating units (or groups of cash-generating The Group presents as exceptional operating costs items on the face of Software, that is not integral to the related hardware, is capitalised as an units) that are expected to benefit from the combination, irrespective of Property, plant and equipment the income statement, material items of revenue or expense which, intangible asset and stated at cost less amortisation and any impairment whether other assets or liabilities of the acquiree are assigned to those Property, plant and equipment is stated at cost or deemed cost on because of the size or the nature and expected infrequency of the events in value. Amortisation is charged to the income statement evenly over units. Each unit or group of units to which goodwill is allocated shall transition to IFRSs less accumulated depreciation and any impairment in giving rise to them, merit separate presentation to allow better its expected useful life of three to five years. represent the lowest level within the entity at which the goodwill is value. Freehold land is not depreciated. understanding of financial performance. monitored for internal management purposes and not be larger than an Assets held under finance leases are depreciated over the shorter of their Franchise assets operating segment before aggregation. expected useful lives and the lease terms. Finance revenue Where the conditions relating to the award of a franchise require the Interest on deposits is accrued on a time basis, by reference to the Group to assume legal responsibility for any pension liability that exists at Where goodwill forms part of a cash-generating unit and part of the operation Residual values and useful economic lives are reviewed annually. principal outstanding and at the effective interest rate applicable. that point in time, the Group recognises a liability representing the fair within that unit is disposed of, the goodwill associated with the operation Depreciation is charged on all addtions to, or disposals of, depreciating disposed of is included in the carrying amount of the operation when value of the related net pension deficit that the Group expects to fund report Strategic assets in the year of purchase or disposal and over its expected useful life Interest-bearing loans and borrowings during the franchise term. When a pension deficit exists at the start of the determining the gain or loss on disposal of the operation. Goodwill disposed of as follows: Debt is initially stated at the amount of the net proceeds, being the fair franchise, a corresponding intangible asset is recognised, reflecting a cost in in this circumstance is measured based on the relative values of the operation value of the consideration received after deduction of issue costs. Leasehold land and buildings The life of the lease acquiring the right to operate the franchise. If a pension surplus exists at disposed of and the portion of the cash-generating unit retained. Following initial recognition the carrying amount is measured at amortised Freehold buildings Over 50 to 100 years the start of the franchise, then a corresponding deferred income balance is cost using the effective interest method. Amortisation of liabilities and any Customer contracts recognised, representing a government grant. The intangible asset or Bus vehicles Over 8 to 15 years gains and losses arising on the repurchase, settlement or other de- Customer contracts relate to the value attributed to contracts and deferred income balance is amortised through the income statement on a relationships purchased as part of the Group’s acquisitions. The value is Plant and equipment Over 3 to 15 years recognition of debt are recognised directly in the income statement. straight-line basis over the period of the franchise. based on the unexpired term of the contracts at the date of acquisition. The carrying values of items of property, plant and equipment are Leases The carrying value of franchise assets is reviewed for impairment at the Customer contracts have a residual value of £nil and are amortised over reviewed for impairment when events or changes in circumstances Assets held under finance leases, which are leases where substantially all of end of the first financial year following the award of the franchise and in the unexpired term. The amortisation expense is taken to the income indicate the carrying value may not be recoverable. Any impairment in the risks and rewards of ownership of the asset have passed to the Group, other periods if events or changes in circumstances indicate that the statement as operating costs. Governance value is recognised immediately in the income statement. and hire purchase contracts are capitalised in the balance sheet, with carrying value may not be recoverable. Impairment of assets Government grants a corresponding liability being recognised, and are depreciated over the shorter of their useful lives and the lease terms. Business combinations and goodwill The Group assesses at each reporting date whether there is an indication Government grants are recognised at their fair value where there is Business combinations are accounted for under IFRS 3 Business that an asset may be impaired. If any such indication exists, or when annual The capital elements of future obligations under leases and hire purchase reasonable assurance that the grant will be received and all attaching Combinations (revised) using the acquisition method. The cost of an impairment testing for an asset is required, the Group makes an estimate contracts are included as liabilities in the balance sheet. conditions will be complied with. When the grant relates to an expense acquisition is measured as the aggregate of the consideration transferred, of the asset’s recoverable amount, being the higher of the asset’s or cash- item, it is recognised in operating costs within the income statement over The interest element of the rental obligations is charged to the income measured at acquisition date fair value and the amount of any non- generating unit’s fair value less costs to sell and its value in use. Value in the period necessary to match on a systematic basis to the costs that it is statement over the periods of the leases and hire purchase contracts

controlling interest in the acquiree. The choice of measurement of non- use is determined for an individual asset, unless the asset does not Financial statements intended to compensate. Where the grant relates to a non-current asset, and represents a constant proportion of the balance of capital controlling interest, either at fair value or at the proportionate share of the generate cash inflows that are largely independent of those from other value is credited to a deferred income account and is released to the repayments outstanding. acquiree’s identifiable assets, is determined on a transaction by transaction assets or groups of assets, and the estimated future cashflows are income statement over the expected useful life of the relevant asset. Leases where a significant proportion of the risks and rewards of basis. Acquisition costs incurred are expensed and included in discounted to their present value using a pre-tax discount rate that reflects Franchise bid costs ownership are retained by the lessor are classified as operating leases. administrative expenses. current market assessments of the time value of money and the risks A key part of the Group’s activities is the process of bidding for and Rentals payable under operating leases, and the amortisation of lease When the Group acquires a business, it assesses the financial assets and specific to the asset. securing franchises, principally to operate rail services in the UK. All incentives and initial direct costs in securing leases, are charged to the liabilities assumed for appropriate classification and designation in Where the carrying amount of an asset exceeds its recoverable amount, franchise bid costs incurred prior to achieving preferred bidder status are income statement on a straight-line basis over the lease term. accordance with the contractual terms, economic circumstances and the asset is considered to be impaired and is written down to its treated as an expense in the income statement irrespective of the ultimate pertinent conditions as at the acquisition date. This includes the separation recoverable amount.

Taxation Shareholder information outcome of the bid. Directly attributable, incremental costs incurred after Current tax assets and liabilities are measured at the amount expected to of embedded derivatives in host contracts by the acquiree. Impairment losses (including goodwill impairment) of continuing achieving preferred bidder status or entering into a franchise extension are be recovered from or paid to the taxation authorities on an undiscounted Any contingent consideration to be transferred by the acquirer will be operations are recognised in the income statement in those expense capitalised as an intangible asset and amortised over the life of the basis at the tax rates that are expected to apply when the related asset is recognised at fair value at the acquisition date. Subsequent changes to the categories consistent with the function of the impaired asset. An franchise/franchise extension. realised or the liability is settled, based on tax rates and tax laws that have fair value of the contingent consideration which is deemed to be an asset assessment is made at each reporting date as to whether there is any Share based payment transactions been enacted or substantively enacted at the balance sheet date. or liability will be recognised in accordance with IAS 39 in profit and loss. indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable The cost of options granted to employees is measured by reference to the fair Deferred tax is provided, using the liability method, on temporary Goodwill is initially measured at cost, being the excess of the aggregate amount is estimated. A previously recognised impairment loss is reversed value at the date at which they are granted, determined by an external differences at the balance sheet date between the tax base of assets and of the acquisition-date fair value of the consideration transferred and the only if there has been a change in the estimates used to determine the valuation using an appropriate pricing model. In granting equity-settled options, liabilities for taxation purposes and their carrying amounts in the financial amount recognised for the non-controlling interest (and where the asset’s recoverable amount since the last impairment loss was recognised. conditions are linked to some or all of the following: the price of the shares of statements. It is provided for on all temporary differences, except: business combination is achieved in stages, the acquisition-date fair value The Go-Ahead Group plc (market conditions); conditions not related to of the acquirer’s previously held equity interest in the acquiree) over the Goodwill impairment losses are not reversed. The reinstated amount • On the initial recognition of goodwill or of an asset or liability in performance or service (non-vesting conditions); performance conditions (a cannot exceed the carrying amount that would have been determined, net a transaction that is not a business combination and, at the time of net identifiable amounts of the assets acquired and the liabilities assumed vesting condition); and service conditions (a vesting condition). in exchange for the business combination. Assets acquired and liabilities of depreciation, had no impairment loss been recognised for the asset in the transaction, affects neither the accounting profit nor taxable profit prior years. After such a reversal, the depreciation charge is adjusted in The cost of options is recognised in the income statement over the assumed in transactions separate from the business combinations, such as or loss; and future periods to allocate the asset’s revised carrying amount, on a period from grant to vesting date, being the date on which the relevant the settlement of pre-existing relationships or post-acquisition • In respect of taxable temporary differences associated with investments systematic basis less any residual value, over its remaining useful life. employees become fully entitled to the award, with a corresponding remuneration arrangements, are accounted for separately from the in subsidiaries where the timing of the reversal of the temporary increase in equity. The cumulative expense recognised at each reporting business combination in accordance with their nature and applicable IFRSs. Non-current assets held for sale differences can be controlled and it is probable that the temporary date reflects the extent to which the period to vesting has expired and Identifiable intangible assets, meeting either the contractual-legal or Non-current assets classified as held for sale are measured at the lower differences will not reverse in the foreseeable future. the directors’ best estimate of the number of options that will ultimately separability criterion, are recognised separately from goodwill. Contingent of carrying amount and fair value less costs to sell. Non-current assets are vest or, in the case of an instrument subject to a market or non-vesting Deferred tax assets are only recognised to the extent that it is probable liabilities representing a present obligation are recognised if the acquisition- classified as held for sale if their carrying amount will be recovered through condition, be treated as vesting as described above. This includes any that the temporary differences will be reversed in the foreseeable future date fair value can be measured reliably. a sale transaction rather than through continuing use. This condition is award where non-vesting conditions within the control of the Group or and taxable profit will be available to allow all or part of the deferred If the aggregate of the acquisition-date fair value of the consideration regarded as met only when the sale is highly probable and the asset is the employee are not met. income tax asset to be utilised. The carrying amount of deferred tax assets transferred and the amount recognised for the non-controlling interest available for immediate sale in its present condition. Management must be No cost is recognised for awards that do not ultimately vest, except for is reviewed at each balance sheet date and reduced to the extent that it is (and where the business combination is achieved in stages, the acquisition committed to the sale which should be expected to qualify for recognition awards where vesting is conditional upon a market or non-vesting no longer probable that sufficient taxable profit will be available to allow date fair value of the acquirer’s previously held equity interest in the as a completed sale within one year from the date of classification. all or part of the deferred income tax asset to be utilised. acquiree) is lower than the fair value of the assets, liabilities and contingent condition. These are treated as vesting irrespective of whether or not the Inventories liabilities and the fair value of any pre-existing interest held in the business market or non-vesting condition is satisfied, provided that all other Tax relating to items recognised outside the income statement is Stocks of fuel and engineering spares are valued at the lower of cost and acquired, the difference is recognised in profit and loss. performance and/or service conditions are satisfied. Where an equity- recognised in other comprehensive income or directly in equity in net realisable value after making due allowance for obsolete and slow settled award is cancelled, it is treated as if it had vested on the date of correlation with the underlying transaction. Otherwise, tax is recognised in After initial recognition, goodwill is measured at cost less any accumulated moving items. Cost comprises direct materials and costs incurred in cancellation, and any cost not yet recognised for the award is the income statement. impairment losses. For the purpose of impairment testing, goodwill bringing the items to their present location and condition. Net realisable recognised immediately. acquired in a business combination is, from the acquisition date, allocated value represents the estimated selling price less costs of sale.

The Go-Ahead Group plc I www.go-ahead.com 123 Notes to the consolidated financial statements continued

2. Summary of significant accounting policies continued A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the Cash and cash equivalents asset in its highest and best use or by selling it to another market Cash and short term deposits in the balance sheet comprise cash at bank participant that would use the asset in its highest and best use. and in hand, and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cashflow statement, The Group uses valuation techniques that are appropriate in the cash and cash equivalents consist of cash and cash equivalents as defined circumstances and for which sufficient data are available to measure fair above, net of outstanding bank overdrafts. value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. Financial assets and derivatives All assets and liabilities for which fair value is measured or disclosed in the The Group uses derivatives to hedge its risks associated with fuel price financial statements are categorised within the fair value hierarchy, fluctuations, and interest derivatives to hedge its risks associated with described as follows, based on the lowest level input that is significant to interest rate fluctuations. Such derivatives are initially recognised at fair the fair value measurement as a whole: value by reference to market values for similar instruments, and subsequently re-measured at fair value at each balance sheet date. • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities Financial assets are accounted for in accordance with IAS 39. Financial assets are initially recognised at fair value, being the transaction price plus, • Level 2 – Valuation techniques for which the lowest level input in the case of financial assets not recorded at fair value through profit or that is significant to the fair value measurement is directly or loss, directly attributable transaction costs. indirectly observable Changes in the fair value of financial instruments that are designated and • Level 3 – Valuation techniques for which the lowest level input that is effective as hedges of future cashflows are recognised in other significant to the fair value measurement is unobservable comprehensive income and the ineffective portion is recognised For assets and liabilities that are recognised in the financial statements on immediately in the income statement. When the cashflow hedge results in a recurring basis, the Group determines whether transfers have occurred the recognition of a non-financial asset or a liability, then at the time that between levels in the hierarchy by re-assessing categorisation (based on asset or liability is recognised, the associated gains or losses on the the lowest level input that is significant to the fair value measurement as a derivative that had previously been recognised in other comprehensive whole) at the end of each reporting period. income are included in the initial measurement of that non-financial asset At each reporting date, the Group analyses the movements in the values or liability. For hedges that do not result in the recognition of an asset or a of assets and liabilities which are required to be re-measured or reliability, amounts deferred in equity are recognised in the income assessed as per the Group’s accounting policies. For this analysis, the statement in the period in which the hedged item affects net profit or loss. Group verifies the major inputs applied in the latest valuation by agreeing For derivatives that do not qualify for hedge accounting, any gains or the information in the valuation computation to contracts and other losses arising from changes in fair value are taken directly to the income relevant documents. statement as they arise. The Group also compares the changes in the fair value of each asset and Hedge accounting is discontinued when the derivative expires or is sold, liability with relevant external sources to determine whether the change terminated or exercised without replacement or rollover, or otherwise no is reasonable. longer qualifies for hedge accounting. At that point in time, any cumulative When required, the Group presents the valuation results to the audit gain or loss on the hedging instrument recognised in other comprehensive committee. This includes a discussion of the major assumptions used in income is kept in equity until the forecast transaction occurs, at which the valuations. point it is taken to the income statement or included in the initial carrying amount of the related non-financial asset as described above. If a hedged For the purpose of fair value disclosures, the Group has determined transaction is no longer expected to occur, the net cumulative gain or loss classes of assets and liabilities on the basis of the nature, characteristics and recognised in other comprehensive income is transferred to the risks of the asset or liability and the level of the fair value hierarchy as income statement. explained above. Fair value measurement Provisions The Group measures financial instruments (derivatives) and non-financial Provisions are recognised when the Group has a present legal or assets at fair value at each balance sheet date. Fair values of financial constructive obligation as a result of past events, it is probable that an instruments measured at amortised cost are disclosed in note 23. outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. If the effect is material, expected Fair value is the price that would be received to sell an asset or paid to future cashflows are discounted using a current pre-tax rate that reflects, transfer a liability in an orderly transaction between market participants at where appropriate, the risks specific to the liability. the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability Where the Group expects some or all of a provision to be reimbursed, takes place either: the reimbursement is recognised as a separate asset but only when recovery is virtually certain. The expense relating to any provision is • In the principal market for the asset or liability, or presented in the income statement net of any reimbursement. Where • In the absence of a principal market, in the most advantageous market discounting is used, the increase in the provision due to unwinding the for the asset or liability discount is recognised as a finance cost. The principal or the most advantageous market must be accessible to Uninsured liabilities the Group. The Group limits its exposure to the cost of motor, employer and public The fair value of an asset or a liability is measured using the assumptions liability claims through insurance policies issued by third parties. These provide that market participants would use when pricing the asset or liability, individual claim cover, subject to high excess limits for total claims within the assuming that market participants act in their economic best interest. excess limits. A provision is recognised for the estimated cost to the Group to settle claims for incidents occurring prior to the balance sheet date.

124 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

2. Summary of significant accounting policies continued A fair value measurement of a non-financial asset takes into account a The estimation of this provision is made after taking appropriate The defined benefit pension asset or liability in the balance sheet market participant’s ability to generate economic benefits by using the professional advice and is based on an assessment of the expected comprises the total for each plan of the present value of the defined Cash and cash equivalents asset in its highest and best use or by selling it to another market settlement on known claims, together with an estimate of settlements that benefit obligation (using a discount rate based on high quality corporate Cash and short term deposits in the balance sheet comprise cash at bank participant that would use the asset in its highest and best use. will be made in respect of incidents occurring prior to the balance sheet bonds), less the fair value of plan assets out of which the obligations are to and in hand, and short term deposits with an original maturity of three date but that have not yet been reported to the Group by the insurer. be settled directly. Fair value is based on market price information and in months or less. For the purpose of the consolidated cashflow statement, The Group uses valuation techniques that are appropriate in the the case of quoted securities is the published bid price. cash and cash equivalents consist of cash and cash equivalents as defined circumstances and for which sufficient data are available to measure fair Treasury shares above, net of outstanding bank overdrafts. value, maximising the use of relevant observable inputs and minimising the Re-acquired shares in the Group, which remain uncancelled, are deducted Past service costs are recognised in the income statement on the earlier use of unobservable inputs. from equity. Consideration paid and the associated costs are also of the date of the plan amendment or curtailment, and the date that the Financial assets and derivatives All assets and liabilities for which fair value is measured or disclosed in the recognised in shareholders’ funds as a separate reserve for own shares. Group recognises restructuring-related costs. When a settlement The Group uses derivatives to hedge its risks associated with fuel price (eliminating all obligations for benefits already accrued) or a curtailment financial statements are categorised within the fair value hierarchy, Any gain or loss on the purchase, sale, issue or cancellation of the Group’s report Strategic fluctuations, and interest derivatives to hedge its risks associated with described as follows, based on the lowest level input that is significant to shares is transferred from the reserve for own shares to revenue reserves. (reducing future obligations as a result of a material reduction in the interest rate fluctuations. Such derivatives are initially recognised at fair the fair value measurement as a whole: scheme membership or a reduction in future entitlement) occurs, the value by reference to market values for similar instruments, and Retirement benefits obligation and related plan assets are remeasured using current actuarial subsequently re-measured at fair value at each balance sheet date. • Level 1 – Quoted (unadjusted) market prices in active markets for The Group operates a number of pension schemes, both defined assumptions and the resultant gain or loss is recognised in the income identical assets or liabilities Financial assets are accounted for in accordance with IAS 39. Financial benefit and defined contribution. The costs of these are recognised in statement during the period in which the settlement or curtailment occurs. the income statement. As discussed below, the Group has invoked the assets are initially recognised at fair value, being the transaction price plus, • Level 2 – Valuation techniques for which the lowest level input Contributions payable under defined contribution schemes are charged that is significant to the fair value measurement is directly or provisions of IAS 1 Presentation of Financial Statements and has departed in the case of financial assets not recorded at fair value through profit or to operating costs in the income statement as they fall due. loss, directly attributable transaction costs. indirectly observable from the requirements of IAS 19 (revised) in respect of the Rail Pension Schemes (RPS). Rail schemes Changes in the fair value of financial instruments that are designated and • Level 3 – Valuation techniques for which the lowest level input that is The train operating companies participate in the RPS, a defined benefit effective as hedges of future cashflows are recognised in other significant to the fair value measurement is unobservable Bus schemes Governance scheme which covers the whole of the UK rail industry. This is partitioned comprehensive income and the ineffective portion is recognised The cost of providing benefits under the defined benefit plans is For assets and liabilities that are recognised in the financial statements on into sections and the Group is responsible for the funding of these immediately in the income statement. When the cashflow hedge results in determined separately for each plan using the projected unit credit a recurring basis, the Group determines whether transfers have occurred schemes whilst it operates the relevant franchise. In contrast to the the recognition of a non-financial asset or a liability, then at the time that method, which attributes entitlement to benefits to the current period (to between levels in the hierarchy by re-assessing categorisation (based on pension schemes operated by most businesses, the RPS is a shared cost asset or liability is recognised, the associated gains or losses on the determine current service cost) and to the current and prior periods (to the lowest level input that is significant to the fair value measurement as a scheme, which means that costs are formally shared 60% employer and derivative that had previously been recognised in other comprehensive determine the present value of defined benefit obligation) and is based on whole) at the end of each reporting period. 40% employee. A liability or asset is recognised in line with other defined income are included in the initial measurement of that non-financial asset actuarial advice. Net interest is calculated by applying the discount rate to At each reporting date, the Group analyses the movements in the values benefit schemes in the Group, although this is offset by a franchise or liability. For hedges that do not result in the recognition of an asset or a the net defined benefit liability or asset. of assets and liabilities which are required to be re-measured or re- adjustment so that the net liability or asset (including as appropriate the liability, amounts deferred in equity are recognised in the income Financial statements assessed as per the Group’s accounting policies. For this analysis, the Remeasurements, comprising of actuarial gains and losses, the effect of impact of any minimum funding requirements) represents the deficit or statement in the period in which the hedged item affects net profit or loss. Group verifies the major inputs applied in the latest valuation by agreeing the asset ceiling (excluding net interest) and the return on plan assets surplus that the Group expects to fund or benefit from during the For derivatives that do not qualify for hedge accounting, any gains or the information in the valuation computation to contracts and other (excluding net interest) are recognised in the statement of comprehensive franchise term. This represents a departure from IAS 19 (revised) so as to losses arising from changes in fair value are taken directly to the income relevant documents. income in the period in which they occur. present fairly the Group’s financial performance, position and cashflow in statement as they arise. The Group also compares the changes in the fair value of each asset and The current service cost is recognised in the income statement within respect of its obligations for the RPS. Please refer to note 27 ‘Retirement Hedge accounting is discontinued when the derivative expires or is sold, liability with relevant external sources to determine whether the change operating costs. The net interest expense or income is recognised in benefit obligations’ for further details. terminated or exercised without replacement or rollover, or otherwise no is reasonable. the income statement within finance costs. longer qualifies for hedge accounting. At that point in time, any cumulative When required, the Group presents the valuation results to the audit

New standards and interpretations not applied Shareholder information gain or loss on the hedging instrument recognised in other comprehensive committee. This includes a discussion of the major assumptions used in The International Accounting Standards Board (‘IASB’) has issued the following standards and interpretations with an effective date after the date of income is kept in equity until the forecast transaction occurs, at which the valuations. point it is taken to the income statement or included in the initial carrying these financial statements: amount of the related non-financial asset as described above. If a hedged For the purpose of fair value disclosures, the Group has determined Effective date transaction is no longer expected to occur, the net cumulative gain or loss classes of assets and liabilities on the basis of the nature, characteristics and International Accounting Standards (IAS/IFRSs) (periods beginning on or after) recognised in other comprehensive income is transferred to the risks of the asset or liability and the level of the fair value hierarchy as Annual Improvements to IFRSs 2012 – 2014 Cycle 1 January 2016 income statement. explained above. IFRS 14 Regulatory Deferral Accounts 1 January 2016 IAS 1 Presentation of Financial Statements – Disclosure Initiative (amendment) 1 January 2016 Fair value measurement Provisions The Group measures financial instruments (derivatives) and non-financial Provisions are recognised when the Group has a present legal or IAS 16 Property, Plant and Equipment and IAS 41 Agriculture – Bearer Plants (amendment) 1 January 2016 assets at fair value at each balance sheet date. Fair values of financial constructive obligation as a result of past events, it is probable that an IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets – Clarification of Acceptable Methods of instruments measured at amortised cost are disclosed in note 23. outflow of resources will be required to settle the obligation, and a reliable Depreciation and Amortisation (amendment) 1 January 2016 estimate of the amount can be made. If the effect is material, expected IFRS 11 Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations (amendment) 1 January 2016 Fair value is the price that would be received to sell an asset or paid to future cashflows are discounted using a current pre-tax rate that reflects, IFRS 10 Consolidated Fianancial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments transfer a liability in an orderly transaction between market participants at where appropriate, the risks specific to the liability. the measurement date. The fair value measurement is based on the in Associates – Investment Entities: Applying the Consolidation Exception (amendment) 1 January 2016 presumption that the transaction to sell the asset or transfer the liability Where the Group expects some or all of a provision to be reimbursed, IAS 27 Separate Financial Statements – Equity Method in Separate Financial Statements (amendment) 1 January 2016 takes place either: the reimbursement is recognised as a separate asset but only when IAS 12 Income Taxes – Recognition of Deferred Tax Assets and Assets for Unreaslised Losses (amendment) 1 January 2017 recovery is virtually certain. The expense relating to any provision is IFRS 15 Revenue from Contracts with Customers 1 January 2018 • In the principal market for the asset or liability, or presented in the income statement net of any reimbursement. Where IFRS 9 Financial Instruments 1 January 2018 • In the absence of a principal market, in the most advantageous market discounting is used, the increase in the provision due to unwinding the IFRS 16 Leases 1 January 2019 for the asset or liability discount is recognised as a finance cost. The principal or the most advantageous market must be accessible to Uninsured liabilities IFRS 16 Leases will have a significant impact on the Group’s balance sheet and income statement as operating leases are reclassified as balance sheet the Group. The Group limits its exposure to the cost of motor, employer and public liabilities. Work will commence during 2016/17 to quantify the impact ahead of implementing the standard in the year ended June 2020. The fair value of an asset or a liability is measured using the assumptions liability claims through insurance policies issued by third parties. These provide The Group does not expect IFRS 15 – Revenue Recognition to have a material impact on the Group when implemented in the year ended June 2019 that market participants would use when pricing the asset or liability, individual claim cover, subject to high excess limits for total claims within the on the basis that in both our rail and bus divisions our contracted customers are easily recognised, performance obligations are clear and transaction assuming that market participants act in their economic best interest. excess limits. A provision is recognised for the estimated cost to the Group to prices are even over the period to which they relate and are time apportioned. settle claims for incidents occurring prior to the balance sheet date. The directors do not anticipate adoption of the remaining standards and interpretations will have a material impact on the Group’s financial statements.

The Go-Ahead Group plc I www.go-ahead.com 125 Notes to the consolidated financial statements continued

3. Segmental analysis The Group’s businesses are managed on a divisional basis. Selected financial data is presented on this basis below. For management purposes, the Group is now organised into three reportable segments: regional bus, London bus and rail. Operating segments within those reportable divisions are combined on the basis of their long term characteristics and similar nature of their products and services, as follows: The regional bus division comprises bus operations outside London. The London bus division comprises bus operations in London under control of TfL and also rail replacement and other contracted services in London. The rail operation through an intermediate holding company, Govia Limited, is 65% owned by Go-Ahead and 35% by Keolis and comprises four rail franchises: Southern, Southeastern, London Midland and GTR. The division is aggregated for the purpose of segmental reporting under IFRS 8 as each operating company has similar objectives, to provide passenger rail services and achieve a modest profit margin through its franchise arrangements with DfT. Each company targets similar margins, has similar economic risks and is viewed and reacted to as one segment by the chief operating decision maker, considered to be the Group Chief Executive. The registered office of Keolis (UK) Limited is in England and Wales. The information reported to the Group Chief Executive in his capacity as chief operating decision maker does not include an analysis of assets and liabilities and accordingly IFRS 8 does not require this information to be presented. Segment performance is evaluated based on operating profit or loss excluding amortisation of intangible assets, goodwill impairment and exceptional operating costs. Transfer prices between operating segments are on an arm’s length basis similar to transactions with third parties. The following tables present information regarding the Group’s reportable segments for the year ended 2 July 2016 and the year ended 27 June 2015. Year ended 2 July 2016 Regional London Total Total bus bus bus Rail operations £m £m £m £m £m Segment revenue 403.3 507.2 910.5 2,511.1 3,421.6 Inter-segment revenue (27.6) (19.6) (47.2) (13.1) (60.3) Group revenue 375.7 487.6 863.3 2,498.0 3,361.3 Operating costs (excluding amortisation, goodwill impairment and exceptional operating costs) (326.0) (444.0) (770.0) (2,470.9) (3,240.9) Segment profit – Group operating profit (before amortisation, goodwill impairment and exceptional operating costs) 49.7 43.6 93.3 27.1 120.4 Intangible amortisation (1.2) (0.9) (2.1) (0.9) (3.0) Group operating profit 48.5 42.7 91.2 26.2 117.4 Net finance costs (17.6) Profit before tax and non-controlling interests 99.8 Tax expense (18.5) Profit for the year 81.3

Regional London Total Total bus bus bus Rail operations £m £m £m £m £m Other segment information Capital expenditure: – Additions 57.4 38.7 96.1 17.8 113.9 – Acquisitions 1.2 – 1.2 – 1.2 – Intangible assets 1.0 0.1 1.1 – 1.1 Depreciation 29.0 18.8 47.8 7.4 55.2

At 2 July 2016, there were non-current assets included within London bus of £1.2m (2015: £nil) relating to operations in Singapore. The operations in Singapore will commence trading in September 2016 and the revenue generated during the year to 2 July 2016 was £nil (2015: £nil). For the year ending 1 July 2017 onwards, operations in Singapore will be disclosed as a separate reportable segment. We have two major customers which individually contribute more than 10% of the Group revenue, one of which contributes £1,076.6m (2015: £363.0m) and the other contributes £481.5m (2015: £456.5m).

126 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

3. Segmental analysis Year ended 27 June 2015 The Group’s businesses are managed on a divisional basis. Selected financial data is presented on this basis below. Regional London Total Total bus bus bus Rail operations For management purposes, the Group is now organised into three reportable segments: regional bus, London bus and rail. Operating segments within £m £m £m £m £m those reportable divisions are combined on the basis of their long term characteristics and similar nature of their products and services, as follows: Segment revenue 384.8 469.7 854.5 2,414.0 3,268.5 The regional bus division comprises bus operations outside London. Inter-segment revenue (24.9) (11.8) (36.7) (16.6) (53.3) The London bus division comprises bus operations in London under control of TfL and also rail replacement and other contracted services in London. Group revenue 359.9 457.9 817.8 2,397.4 3,215.2 The rail operation through an intermediate holding company, Govia Limited, is 65% owned by Go-Ahead and 35% by Keolis and comprises four rail Operating costs (excluding amortisation, goodwill impairment and franchises: Southern, Southeastern, London Midland and GTR. The division is aggregated for the purpose of segmental reporting under IFRS 8 as each exceptional operating costs) (313.2) (415.6) (728.8) (2,371.7) (3,100.5) operating company has similar objectives, to provide passenger rail services and achieve a modest profit margin through its franchise arrangements with Segment profit – Group operating profit (before amortisation, Strategic report Strategic DfT. Each company targets similar margins, has similar economic risks and is viewed and reacted to as one segment by the chief operating decision goodwill impairment and exceptional operating costs) 46.7 42.3 89.0 25.7 114.7 maker, considered to be the Group Chief Executive. The registered office of Keolis (UK) Limited is in England and Wales. Intangible amortisation (1.6) (1.8) (3.4) (0.8) (4.2) The information reported to the Group Chief Executive in his capacity as chief operating decision maker does not include an analysis of assets and Goodwill impairment (4.9) – (4.9) – (4.9) liabilities and accordingly IFRS 8 does not require this information to be presented. Segment performance is evaluated based on operating profit or loss Exceptional operating costs – – – (8.8) (8.8) excluding amortisation of intangible assets, goodwill impairment and exceptional operating costs. Group operating profit 40.2 40.5 80.7 16.1 96.8 Transfer prices between operating segments are on an arm’s length basis similar to transactions with third parties. Net finance costs (18.1) The following tables present information regarding the Group’s reportable segments for the year ended 2 July 2016 and the year ended 27 June 2015. Profit before tax and non-controlling interests 78.7 Tax expense (19.4) Year ended 2 July 2016 Profit for the year 59.3 Regional London Total Total Governance bus bus bus Rail operations £m £m £m £m £m Segment revenue 403.3 507.2 910.5 2,511.1 3,421.6 Regional London Total Total bus bus bus Rail operations Inter-segment revenue (27.6) (19.6) (47.2) (13.1) (60.3) £m £m £m £m £m Group revenue 375.7 487.6 863.3 2,498.0 3,361.3 Other segment information Operating costs (excluding amortisation, goodwill impairment and Capital expenditure: exceptional operating costs) (326.0) (444.0) (770.0) (2,470.9) (3,240.9) – Additions 28.0 8.1 36.1 6.2 42.3 Segment profit – Group operating profit (before amortisation, – Acquisitions and new rail franchises 0.4 – 0.4 6.9 7.3 Financial statements goodwill impairment and exceptional operating costs) 49.7 43.6 93.3 27.1 120.4 – Intangible assets 1.1 0.1 1.2 4.9 6.1 Intangible amortisation (1.2) (0.9) (2.1) (0.9) (3.0) Depreciation 27.5 18.2 45.7 24.8 70.5 Group operating profit 48.5 42.7 91.2 26.2 117.4 Net finance costs (17.6) 4. Group revenue Profit before tax and non-controlling interests 99.8 This note provides an analysis of Group revenue. For accounting policies see ‘Revenue recognition’, ‘Rendering of services’, ‘Rental income’ and ‘Profit Tax expense (18.5) and revenue sharing/support agreements’ in note 2. Profit for the year 81.3 2016 2015

£m £m Shareholder information Rendering of services 3,498.5 3,208.6 Regional London Total Total Rental income 22.8 10.0 bus bus bus Rail operations GTR franchise revenue adjustment (276.0) (120.9) £m £m £m £m £m Franchise subsidy receipts and revenue support 116.0 117.5 Other segment information Group revenue 3,361.3 3,215.2 Capital expenditure: Finance revenue 3.2 2.4 – Additions 57.4 38.7 96.1 17.8 113.9 Total Group revenue 3,364.5 3,217.6 – Acquisitions 1.2 – 1.2 – 1.2 – Intangible assets 1.0 0.1 1.1 – 1.1 Depreciation 29.0 18.8 47.8 7.4 55.2

The Go-Ahead Group plc I www.go-ahead.com 127 Notes to the consolidated financial statements continued

5. Operating costs (excluding amortisation, goodwill impairment and exceptional operating items) Detailed below are the key amounts recognised in arriving at our operating costs. For accounting policies see ‘Profit and revenue sharing/support agreements’, ‘Property, plant and equipment’, ‘Government grants’ and ‘Franchise bid costs’ in note 2. 2016 2015 £m £m Employee costs (note 6) 1,215.5 1,079.6 Operating lease payments – bus vehicles 15.4 16.6 – non-rail properties 3.3 2.6 – other non-rail – 0.1 – rail rolling stock 427.7 410.9 – other rail 112.2 88.0 Total lease and sublease payments recognised as an expense (excluding rail access charges)1 558.6 518.2 – rail access charges 519.2 489.9 Total lease and sublease payments recognised as an expense2 1,077.8 1,008.1

DfT Franchise agreement payments 38.2 228.6 Other operating income (17.5) (24.8) Depreciation of property, plant and equipment – owned assets 54.9 69.4 – leased assets 0.3 1.1 Total depreciation expense 55.2 70.5

Auditors’ remuneration – audit of parent financial statements (Deloitte/EY) 0.1 0.1 – audit of subsidiary financial statements (Deloitte/EY) 0.5 0.4 – audit of subsidiary financial statements (Grant Thornton) – – Total audit fees 0.6 0.5 – taxation compliance services 0.1 0.1 – taxation advisory services – – – other non-audit 0.1 0.1 Total non-audit fees 0.2 0.2 Total auditors’ remuneration 0.8 0.7

Trade receivables not recovered 0.8 0.3 Energy costs – bus fuel 116.8 118.4 – rail diesel fuel 9.8 9.6 – rail electricity (EC4T) 122.3 109.5 – cost of site energy 15.3 15.2 Total energy costs 264.2 252.7

Government grants (4.1) (8.0) Loss/(profit) on disposal of property, plant and equipment 0.7 (0.4) Profit on sale of assets held for sale (0.7) – Costs expensed relating to franchise bidding activities 5.7 10.7 DfT profit share 43.7 24.0 Other operating costs 560.6 458.5 Total operating costs (excluding amortisation, goodwill impairment and exceptional operating costs) 3,240.9 3,100.5 1. The total lease and sublease payments recognised as an expense (excluding rail access charges) are made up of minimum lease payments of £574.2m (2015: £531.7m), net of sublease payments of £15.6m (2015: £13.5m) relating to other rail leases. 2. The total lease and sublease payments recognised as an expense are made up of minimum lease payments of £1,093.4m (2015: £1,021.6m), net of sublease payments of £15.6m (2015: £13.5m) relating to other rail leases. During the year, £1.4m (2015: £1.5m) was also paid to other ‘Big 4’ accounting firms for a variety of services. The Group received net receipts from Network Rail during the year of £38.1m (2015: £88.0m).

128 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

5. Operating costs (excluding amortisation, goodwill impairment and exceptional operating items) 6. Employee costs Detailed below are the key amounts recognised in arriving at our operating costs. For accounting policies see ‘Profit and revenue sharing/support This note shows total employment costs, inclusive of share based payment charges. We have a number of share plans used to award shares to directors agreements’, ‘Property, plant and equipment’, ‘Government grants’ and ‘Franchise bid costs’ in note 2. and employees. A charge is recognised over the vesting period in the consolidated income statement, based on the fair value of the award at the date 2016 2015 of grant. The note also shows the average number of people employed by the Group during the year. For accounting policies see ‘Share based payment £m £m transactions’ in note 2. Employee costs (note 6) 1,215.5 1,079.6 2016 2015 Operating lease payments £m £m – bus vehicles 15.4 16.6 Wages and salaries 1,017.6 915.4 – non-rail properties 3.3 2.6 Social security costs 92.2 80.5

– other non-rail – 0.1 Other pension costs 103.5 82.1 report Strategic – rail rolling stock 427.7 410.9 Share based payments charge 2.2 1.6 – other rail 112.2 88.0 1,215.5 1,079.6 1 Total lease and sublease payments recognised as an expense (excluding rail access charges) 558.6 518.2 The average monthly number of employees during the year, including directors, was: – rail access charges 519.2 489.9

Total lease and sublease payments recognised as an expense2 1,077.8 1,008.1 2016 2015 DfT Franchise agreement payments 38.2 228.6 Administration and supervision 3,007 2,964 Other operating income (17.5) (24.8) Maintenance and engineering 2,597 2,651 Depreciation of property, plant and equipment Operations 21,962 20,545 – owned assets 54.9 69.4 27,566 26,160 Governance – leased assets 0.3 1.1 The information required by Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations Total depreciation expense 55.2 70.5 2013 is provided in the directors’ remuneration report. Auditors’ remuneration Sharesave scheme – audit of parent financial statements (Deloitte/EY) 0.1 0.1 Shareholder approval was obtained at the 2013 AGM for the introduction of a new HM Revenue & Customs approved Savings-Related Share Option – audit of subsidiary financial statements (Deloitte/EY) 0.5 0.4 scheme, known as The Go-Ahead Group plc 2013 Savings-Related Share Option Scheme (the Sharesave scheme) for employees of the Group and its – audit of subsidiary financial statements (Grant Thornton) – – operating companies. Financial statements Total audit fees 0.6 0.5 The Sharesave scheme is open to all full time and part-time employees (including executive directors) who have completed at least six months of – taxation compliance services 0.1 0.1 continuous service with a Go-Ahead Group company at the date they are invited to participate in a scheme launch. To take part, qualifying employees – taxation advisory services – – have to enter into a savings contract for a period of three years under which they agree to save a monthly amount, from a minimum of £5 to a – other non-audit 0.1 0.1 maximum (not exceeding £500) specified by the Group at the time of invitation. For the February 2016 launch, the maximum monthly savings limit set Total non-audit fees 0.2 0.2 by the Group was £50. At the end of the savings period, employees can buy shares at a 20% discount of the market price set at the date of invitation or Total auditors’ remuneration 0.8 0.7 take their full savings back.

The fair value of equity-settled share options granted is estimated as at the date of grant using the Black-Scholes model, taking into account the terms Trade receivables not recovered 0.8 0.3 and conditions upon which the options were granted. The key assumptions input into the model are future share price volatility, future dividend yield,

Energy costs Shareholder information future risk free interest rate, forfeiture rate and option life. – bus fuel 116.8 118.4 There are savings-related options at 2 July 2016 as follows: – rail diesel fuel 9.8 9.6 – rail electricity (EC4T) 122.3 109.5 Scheme maturity 1 May 2019 1 May 2017 – cost of site energy 15.3 15.2 Option price (£) 19.11 17.34 Total energy costs 264.2 252.7 No. of options unexercised at 2 July 2016 367,593 397,311 No. of options exercised during the year – 1,667 Government grants (4.1) (8.0) No. of options exercisable at 2 July 2016 –– Loss/(profit) on disposal of property, plant and equipment 0.7 (0.4) Profit on sale of assets held for sale (0.7) – The expense recognised for the scheme during the year to 2 July 2016 was £0.4m (2015: £0.3m). Costs expensed relating to franchise bidding activities 5.7 10.7 The following table illustrates the number and weighted average exercise price (WAEP) of share options for the Sharesave scheme: DfT profit share 43.7 24.0 2016 2015 Other operating costs 560.6 458.5 2016 WAEP 2015 WAEP No. £ No. £ Total operating costs (excluding amortisation, goodwill impairment and exceptional operating costs) 3,240.9 3,100.5 Outstanding at the beginning of the year 436,322 17.34 461,575 17.34 1. The total lease and sublease payments recognised as an expense (excluding rail access charges) are made up of minimum lease payments of £574.2m (2015: £531.7m), net of sublease payments of £15.6m (2015: £13.5m) relating to other rail leases. Granted during the year 370,251 19.11 –– Forfeited during the year (40,002) 17.46 (25,089) 17.34 2. The total lease and sublease payments recognised as an expense are made up of minimum lease payments of £1,093.4m (2015: £1,021.6m), net of sublease payments of £15.6m (2015: £13.5m) relating to other rail leases. Exercised during the year (1,667) 17.34 (164) 17.34 During the year, £1.4m (2015: £1.5m) was also paid to other ‘Big 4’ accounting firms for a variety of services. Outstanding at the end of the year 764,904 18.19 436,322 17.34

The Group received net receipts from Network Rail during the year of £38.1m (2015: £88.0m).

The Go-Ahead Group plc I www.go-ahead.com 129 Notes to the consolidated financial statements continued

6. Employee costs continued The weighted average exercise price at the date of exercise for the options exercised in the period was £17.34 (2015: £17.34). At the year end, no options were exercisable and the weighted average exercise price of the options was £18.19 (2015: £17.34). The options outstanding at the end of the year have a weighted average remaining contracted life of 1.79 years (2015: 1.83 years). Long Term Incentive Plans The executive directors participate in The Go-Ahead Group Long Term Incentive Plan 2005 (LTIP). The LTIP provides for executive directors and certain other senior employees to be awarded nil cost shares in the Group conditional on specified performance conditions being met over a period of three years. Refer to the directors’ remuneration report for further details of the LTIP. The expense recognised for the LTIP during the year to 2 July 2016 was £0.5m (2015: £0.4m). The fair value of LTIP options granted is estimated as at the date of grant using a Monte Carlo model, taking into account the terms and conditions upon which the options were granted. The inputs to the model used for the options granted in the year to 2 July 2016 and 27 June 2015 were: 2016 2015 % per annum % per annum The Go-Ahead Group plc Future share price volatility 21.0 22.0 FTSE Mid-250 index comparator Future share price volatility 20.0 20.0 Correlation between companies 30.0 30.0

The weighted average fair value of options granted during the year was £20.82 (2015: £23.49). The following table shows the number of share options for the LTIP: 2016 2015 Outstanding at the beginning of the year 181,302 259,145 Granted during the year 32,618 34,996 Forfeited during the year (33,157) (36,350) Exercised during the year (96,348) (76,489) Outstanding at the end of the year 84,415 181,302

At the year end, 27,415 options were exercisable and the weighted average exercise price of the options was £19.78 (2015: £26.98). The weighted average remaining contractual life of the options was 1.03 years (2015: 0.66 years). The weighted average share price of options exercised was £25.44 (2015: £24.11). Deferred Share Bonus Plan The Deferred Share Bonus Plan (DSBP) provides for executive directors and certain other senior employees to be awarded shares in the Group conditional on the achievement of financial and strategic targets. The shares are deferred over a three year period. Refer to the directors’ remuneration report for further details of the DSBP. The expense recognised for the DSBP during the year to 2 July 2016 was £1.3m (2015: £0.9m). The DSBP options are not subject to any market based performance conditions. Therefore the fair value of the options is equal to the share price at the date of grant. The weighted average fair value of options granted during the year was £25.97 (2015: £25.71). The following table shows the number of share options for the DSBP: 2016 2015 Outstanding at the beginning of the year 136,144 56,086 Granted during the year 62,047 87,320 Forfeited during the year (18,341) (5,270) Exercised during the year (14,204) (1,992) Outstanding at the end of the year 165,646 136,144

At the year end, 30,327 options were exercisable and the weighted average exercise price of the options was £19.78 (2015: £26.98). The weighted average remaining contractual life of the options was 1.18 years (2015: 1.54 years). The weighted average share price of options exercised was £25.57 (2015: £23.96). Share incentive plans The Group operates an HM Revenue & Customs (HMRC) approved share incentive plan, known as The Go-Ahead Group plc Share Incentive Plan (SIP). The SIP is open to all Group employees (including executive directors) who have completed at least six months’ service with a Group company at the date they are invited to participate in the plan. The SIP permits the Group to make four different types of awards to employees (free shares, partnership shares, matching shares and dividend shares), although the Group has, so far, made awards of partnership shares only. Under these awards, the Group invites qualifying employees to apply between £10 and £150 per month in acquiring shares in the Group at the prevailing market price. Under the terms of the scheme, certain tax advantages are available to the Group and employees.

130 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

6. Employee costs continued 7. Exceptional operating items The weighted average exercise price at the date of exercise for the options exercised in the period was £17.34 (2015: £17.34). This note identifies items of an exceptional nature that have a significant impact on the results of the Group in the period. For accounting policies see At the year end, no options were exercisable and the weighted average exercise price of the options was £18.19 (2015: £17.34). ‘Exceptional operating items’ in note 2. 2016 2015 The options outstanding at the end of the year have a weighted average remaining contracted life of 1.79 years (2015: 1.83 years). £m £m Long Term Incentive Plans Rail restructuring costs – (8.8) The executive directors participate in The Go-Ahead Group Long Term Incentive Plan 2005 (LTIP). The LTIP provides for executive directors and Total exceptional operating costs – (8.8) certain other senior employees to be awarded nil cost shares in the Group conditional on specified performance conditions being met over a period of three years. Refer to the directors’ remuneration report for further details of the LTIP. Year ended 2 July 2016 There were no exceptional operating items during the year ended 2 July 2016.

The expense recognised for the LTIP during the year to 2 July 2016 was £0.5m (2015: £0.4m). report Strategic The fair value of LTIP options granted is estimated as at the date of grant using a Monte Carlo model, taking into account the terms and conditions upon Year ended 27 June 2015 which the options were granted. The inputs to the model used for the options granted in the year to 2 July 2016 and 27 June 2015 were: Total exceptional operating costs in the year of £8.8m related to rail restructuring costs of the GTR franchise which brings Thameslink and Great 2016 2015 Northern together with Southern and Gatwick Express under one management structure. % per annum % per annum 8. Finance revenue and costs The Go-Ahead Group plc Finance revenue comprises interest received from bank deposits. Finance costs mainly arise from interest due on the bond and bank loans. For Future share price volatility 21.0 22.0 accounting policies see ‘Finance revenue’ and ‘Interest-bearings loans and borrowings’ in note 2. FTSE Mid-250 index comparator 2016 2015 Future share price volatility 20.0 20.0 £m £m

Correlation between companies 30.0 30.0 Bank interest receivable on bank deposits 3.2 2.4 Governance Finance revenue 3.2 2.4 The weighted average fair value of options granted during the year was £20.82 (2015: £23.49).

The following table shows the number of share options for the LTIP: Interest payable on bank loans and overdrafts (2.0) (2.5) 2016 2015 Interest payable on £200m sterling 7.5 year bond (11.3) (11.2) Outstanding at the beginning of the year 181,302 259,145 Other interest payable (2.2) (2.8) Granted during the year 32,618 34,996 Unwinding of discounting on provisions (2.4) (1.4) Forfeited during the year (33,157) (36,350) Interest payable under finance leases and hire purchase contracts (0.8) (0.2) Financial statements Exercised during the year (96,348) (76,489) Interest on net pension liability (2.1) (2.4) Outstanding at the end of the year 84,415 181,302 Finance costs (20.8) (20.5) At the year end, 27,415 options were exercisable and the weighted average exercise price of the options was £19.78 (2015: £26.98). 9. Taxation The weighted average remaining contractual life of the options was 1.03 years (2015: 0.66 years). The weighted average share price of options exercised This note explains how our Group tax charge arises. The deferred tax section of the note sets out the deferred tax assets and liabilities held across the was £25.44 (2015: £24.11). Group. For accounting policies see ‘Taxation’ in note 2. Deferred Share Bonus Plan The Group tax policy can be found at www.go-ahead.com. The Deferred Share Bonus Plan (DSBP) provides for executive directors and certain other senior employees to be awarded shares in the Group conditional on the achievement of financial and strategic targets. The shares are deferred over a three year period. Refer to the directors’ remuneration a. Tax recognised in the income statement and in equity Shareholder information 2016 2015 report for further details of the DSBP. £m £m The expense recognised for the DSBP during the year to 2 July 2016 was £1.3m (2015: £0.9m). Current tax charge 28.5 25.0 The DSBP options are not subject to any market based performance conditions. Therefore the fair value of the options is equal to the share price at Adjustments in respect of current tax of previous years 0.6 (0.4) the date of grant. 29.1 24.6 The weighted average fair value of options granted during the year was £25.97 (2015: £25.71). Deferred tax relating to origination and reversal of temporary differences at 20% (2015: 20%) (7.1) (4.8) Adjustments in respect of deferred tax of previous years 0.2 (0.4) The following table shows the number of share options for the DSBP: Impact of opening deferred tax rate reduction (3.7) – 2016 2015 Tax reported in consolidated income statement 18.5 19.4 Outstanding at the beginning of the year 136,144 56,086

Granted during the year 62,047 87,320 Forfeited during the year (18,341) (5,270) Exercised during the year (14,204) (1,992) Outstanding at the end of the year 165,646 136,144

The Go-Ahead Group plc I www.go-ahead.com 131 Notes to the consolidated financial statements continued

9. Taxation continued Tax relating to items charged or credited outside of profit or loss 2016 2015 £m £m Tax on remeasurement gains on defined benefit pension plans 18.5 4.9 Deferred tax on cashflow hedges 2.1 (4.0) Deferred tax on share based payments (taken directly to equity) 0.5 (0.3) Corporation tax on share based payments (taken directly to equity) (0.3) – Impact of opening deferred tax rate reduction 1.2 – Tax reported outside of profit or loss 22.0 0.6 b. Reconciliation A reconciliation of income tax applicable to accounting profit on ordinary activities before taxation, at the statutory tax rate, to tax at the Group’s effective tax rate for the years ended 2 July 2016 and 27 June 2015 is as follows: 2016 2015 £m £m Accounting profit on ordinary activities before taxation 99.8 78.7

At United Kingdom tax rate of 20% (2015: 20.75%) 20.0 16.3 Adjustments in respect of current tax of previous years 0.6 (0.4) Expenditure not allowable for tax purposes 0.8 3.7 Adjustments in respect of deferred tax of previous years 0.2 (0.4) Effect of the difference between current year corporation tax and deferred tax rates 0.6 0.2 Impact of opening deferred tax rate reduction (3.7) – Tax reported in consolidated income statement 18.5 19.4 Effective tax rate 18.5% 24.7%

The underlying tax rate is the same as the effective tax rate for the year ended 2 July 2016 at 18.5%. The underlying tax rate for the year ended 27 June 2015 is 23.2%, as it excludes the impact of the goodwill impairment of £4.9m. The Group had subsidiary companies in Germany and Singapore during the year but neither generated any operating income. Costs incurred by these companies were either expensed in the UK without tax relief being claimed or were carried forward as prepayments without tax relief being claimed during the year. As such the Group was entirely taxable in the UK during the course of the financial year. c. Reconciliation of current tax liabilities A reconciliation of the current tax liability is provided below: 2016 2015 £m £m Current tax liability at start of year 14.9 10.6 Corporation tax reported in consolidated income statement 29.1 24.6 Corporation tax (taken directly to equity) (0.3) – Paid in the year (24.8) (20.3) Current tax liability at end of year 18.9 14.9 d. Deferred tax The deferred tax included in the balance sheet is as follows: 2016 2015 £m £m Deferred tax liability Accelerated capital allowances (28.4) (29.6) Other temporary differences (8.4) (1.1) Revaluation of land and buildings treated as deemed cost on conversion to IFRS (13.3) (15.4) Deferred tax liability included in balance sheet (50.1) (46.1)

Deferred tax asset Retirement benefit obligations 0.5 11.9 Cashflow hedges 2.8 – Share based payments 0.9 – Deferred tax asset included in balance sheet 4.2 11.9

The deferred tax asset is recognised as it is considered probable that there will be future taxable profits available. The deferred tax liabilities and assets included in the balance sheet have been calculated using applicable enacted rates. Of the deferred tax liability, £1.6m (2015: £1.7m) is classed as current and £48.5m (2015: £44.4m) is classed as non-current. Of the deferred tax asset, £2.0m (2015: £nil) is classed as current and £2.2m (2015: £11.9m) as non-current.

132 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

9. Taxation continued The movements in deferred tax in the income statement and other comprehensive income for the years ending 2 July 2016 and 27 June 2015 are Tax relating to items charged or credited outside of profit or loss as follows: 2016 2015 £m £m Year ended 2 July 2016 Recognised Tax on remeasurement gains on defined benefit pension plans 18.5 4.9 in other Deferred tax on cashflow hedges 2.1 (4.0) At 27 June Recognised in comprehensive Recognised Transfer At 2 July 2015 income statement income directly in equity categories 2016 Deferred tax on share based payments (taken directly to equity) 0.5 (0.3) £m £m £m £m £m £m Corporation tax on share based payments (taken directly to equity) (0.3) – Accelerated capital allowances (29.6) 1.2 – – – (28.4) Impact of opening deferred tax rate reduction 1.2 – Other temporary differences (1.1) (1.0) – – (6.3) (8.4) Strategic report Strategic Tax reported outside of profit or loss 22.0 0.6 Revaluation of land and buildings treated as deemed b. Reconciliation cost on conversion to IFRS (15.4) 2.1 – – – (13.3) A reconciliation of income tax applicable to accounting profit on ordinary activities before taxation, at the statutory tax rate, to tax at the Group’s Retirement benefit obligations 11.9 8.3 (19.7) – – 0.5 effective tax rate for the years ended 2 July 2016 and 27 June 2015 is as follows: Cashflow hedges ––(2.1) – 4.9 2.8 2016 2015 Share based payments – ––(0.5) 1.4 0.9 £m £m (34.2) 10.6 (21.8) (0.5) – (45.9) Accounting profit on ordinary activities before taxation 99.8 78.7 Year ended 27 June 2015

Recognised At United Kingdom tax rate of 20% (2015: 20.75%) 20.0 16.3 in other Adjustments in respect of current tax of previous years 0.6 (0.4) At 28 June Recognised in comprehensive Recognised Transfer At 27 June Governance 2014 income statement income directly in equity categories 2015 Expenditure not allowable for tax purposes 0.8 3.7 £m £m £m £m £m £m Adjustments in respect of deferred tax of previous years 0.2 (0.4) Accelerated capital allowances (30.6) 1.0 – – – (29.6) Effect of the difference between current year corporation tax and deferred tax rates 0.6 0.2 Other temporary differences (2.8) (2.6) 4.0 0.3 – (1.1) Impact of opening deferred tax rate reduction (3.7) – Revaluation of land and buildings treated as deemed Tax reported in consolidated income statement 18.5 19.4 cost on conversion to IFRS (17.3) 1.9 – – – (15.4) Effective tax rate 18.5% 24.7% Retirement benefit obligations 11.9 4.9 (4.9) – – 11.9 Financial statements The underlying tax rate is the same as the effective tax rate for the year ended 2 July 2016 at 18.5%. (38.8) 5.2 (0.9) 0.3 – (34.2) The underlying tax rate for the year ended 27 June 2015 is 23.2%, as it excludes the impact of the goodwill impairment of £4.9m. The deferred tax included in the Group income statement is as follows: 2016 2015 The Group had subsidiary companies in Germany and Singapore during the year but neither generated any operating income. Costs incurred by these £m £m companies were either expensed in the UK without tax relief being claimed or were carried forward as prepayments without tax relief being claimed Accelerated capital allowances 0.2 (1.5) during the year. As such the Group was entirely taxable in the UK during the course of the financial year. Revaluation (0.6) (0.9) c. Reconciliation of current tax liabilities Retirement benefit obligations (8.3) (4.9)

A reconciliation of the current tax liability is provided below: Temporary differences arising on pension spreading 2.4 2.9 Shareholder information 2016 2015 Other temporary differences (0.8) (0.4) £m £m (7.1) (4.8) Current tax liability at start of year 14.9 10.6 Adjustments in respect of prior years 0.2 (0.4) Corporation tax reported in consolidated income statement 29.1 24.6 Adjustments in respect of opening deferred tax rate reduction (3.7) – Corporation tax (taken directly to equity) (0.3) – Deferred tax expense (10.6) (5.2) Paid in the year (24.8) (20.3) Current tax liability at end of year 18.9 14.9 The standard rate of UK corporation tax reduced from 21% to 20% from 1 April 2015. A rate of 20% therefore applies to the current tax charge arising during the year ended 2 July 2016. d. Deferred tax In addition to the change in rate of corporation tax identified above, further reductions in the rate to 19% from 1 April 2017 and 18% from 1 April 2020 The deferred tax included in the balance sheet is as follows: were substantively enacted prior to the balance sheet date and have been applied to the Group’s deferred tax balance at the balance sheet date. 2016 2015 £m £m An announcement in the 2016 Budget also noted the intention to amend the rate from 1 April 2020 to 17%. If the reduction to 17% had been enacted Deferred tax liability at the balance sheet date, the Group’s deferred tax liability would have reduced by £2.4m to £47.7m, and the deferred tax asset would have remained the same at £4.2m. Accelerated capital allowances (28.4) (29.6) Other temporary differences (8.4) (1.1) 10. Earnings per share Revaluation of land and buildings treated as deemed cost on conversion to IFRS (13.3) (15.4) Basic earnings per share is the amount of profit generated for the financial year attributable to equity shareholders divided by the weighted average Deferred tax liability included in balance sheet (50.1) (46.1) number of shares in issue during the year. This note also includes adjusted earnings per share, which shows a ‘normalised’ earnings per share following elimination of the impact of intangible asset amortisation, goodwill impairment, exceptional operating costs, and the incremental effect Deferred tax asset of IAS 19 (revised). Retirement benefit obligations 0.5 11.9 Cashflow hedges 2.8 – Basic and diluted earnings per share 2016 2015 Share based payments 0.9 – £m £m Deferred tax asset included in balance sheet 4.2 11.9 Net profit attributable to equity holders of the parent 69.7 52.2 The deferred tax asset is recognised as it is considered probable that there will be future taxable profits available. Consisting of: Adjusted earnings on continuing operations attributable to equity holders of the parent 94.7 78.0 The deferred tax liabilities and assets included in the balance sheet have been calculated using applicable enacted rates. Amortisation and goodwill impairment after taxation and non-controlling interests (2.1) (8.0) Of the deferred tax liability, £1.6m (2015: £1.7m) is classed as current and £48.5m (2015: £44.4m) is classed as non-current. Of the deferred tax asset, Exceptional operating costs after taxation and non-controlling interests – (4.5) £2.0m (2015: £nil) is classed as current and £2.2m (2015: £11.9m) as non-current. IAS 19 (revised) after taxation and non-controlling interests (22.9) (13.3) Basic and diluted earnings attributable to equity holders of the parent 69.7 52.2

The Go-Ahead Group plc I www.go-ahead.com 133 Notes to the consolidated financial statements continued

10. Earnings per share continued 2016 2015 Basic weighted average number of shares in issue (‘000) 42,951 42,916 Dilutive potential share options (‘000) 247 754 Diluted weighted average number of shares in issue (‘000) 43,198 43,670

Earnings per share: Basic earnings per share (pence per share) 162.3 121.6 Diluted earnings per share 161.4 119.5 Adjusted basic earnings per share 220.5 181.8 Adjusted diluted earnings per share 219.3 178.6

The weighted average number of shares in issue excludes treasury shares held by the Group, and shares held in trust for the LTIP and DSBP arrangements. No shares were bought back and cancelled by the Group in the period from 2 July 2016 to 8 September 2016. The effect of taxation and non-controlling interests on intangible asset amortisation, goodwill impairment, exceptional operating costs and the incremental effect of IAS 19 (revised) is shown below for each of the periods. Adjusted earnings per share Adjusted earnings per share is also presented to eliminate the impact of intangible asset amortisation, goodwill impairment, exceptional operating costs and the incremental effect of IAS 19 (revised) in order to show a ‘normalised’ earnings per share, reflecting the underlying performance of the business. Adjusted earnings were £94.7m in the period (2015: £78.0m) resulting in adjusted earnings per share of 220.5p (2015: 181.8p). This is analysed as follows: Year ended 2 July 2016 Amortisation and Profit for goodwill Exceptional Adjusted profit the year impairment operating costs IAS 19 (revised) for the year £m £m £m £m £m Profit before taxation 99.8 3.0 – 39.1 141.9 Less: Taxation (18.5) (0.6) – (7.8) (26.9) Less: Non-controlling interests (11.6) (0.3) – (8.4) (20.3) Adjusted profit attributable to equity holders of the parent 69.7 2.1 – 22.9 94.7 Adjusted basic earnings per share (pence per share) 220.5 Adjusted diluted earnings per share (pence per share) 219.3 Year ended 27 June 2015 Amortisation and Profit for goodwill Exceptional Adjusted profit the year impairment operating costs IAS 19 (revised) for the year £m £m £m £m £m Profit before taxation 78.7 9.1 8.8 22.3 118.9 Less: Taxation (19.4) (0.9) (1.8) (4.6) (26.7) Less: Non-controlling interests (7.1) (0.2) (2.5) (4.4) (14.2) Adjusted profit attributable to equity holders of the parent 52.2 8.0 4.5 13.3 78.0 Adjusted basic earnings per share (pence per share) 181.8 Adjusted diluted earnings per share (pence per share) 178.6 11. Dividends paid and proposed Dividends are one type of shareholder return, historically paid to our shareholders in April and November. 2016 2015 £m £m Declared and paid during the year Equity dividends on ordinary shares: Final dividend for 2015: 63.4p per share (2014: 59.0p) 27.2 25.3 Interim dividend for 2016: 28.33p per share (2015: 26.6p) 12.2 11.4 39.4 36.7

2016 2015 £m £m Proposed for approval at the AGM (not recognised as a liability as at 2 July 2016) Equity dividends on ordinary shares: Final dividend for 2016: 67.52p per share (2015: 63.4p) 29.0 27.2

134 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

10. Earnings per share continued 12. Property, plant and equipment 2016 2015 The Group holds significant investments in land and buildings, bus vehicles and plant and equipment, which form our tangible assets. All assets (excluding Basic weighted average number of shares in issue (‘000) 42,951 42,916 freehold land) are depreciated over their useful economic lives. For accounting policies see ‘Property, plant and equipment’ in note 2. Dilutive potential share options (‘000) 247 754 Long term Short term Freehold land leasehold land leasehold land Plant and Diluted weighted average number of shares in issue (‘000) 43,198 43,670 and buildings and properties and properties Bus vehicles equipment Total £m £m £m £m £m £m Earnings per share: Cost: Basic earnings per share (pence per share) 162.3 121.6 At 28 June 2014 183.7 0.4 14.2 520.5 180.2 899.0 Diluted earnings per share 161.4 119.5 Additions 1.8 – – 31.2 9.3 42.3 Adjusted basic earnings per share 220.5 181.8 Acquisitions and new rail franchises – – – 0.4 6.9 7.3 report Strategic Adjusted diluted earnings per share 219.3 178.6 Disposals – – – (10.9) (6.8) (17.7) Transfer of assets held for resale 0.2 – – – – 0.2 The weighted average number of shares in issue excludes treasury shares held by the Group, and shares held in trust for the LTIP and DSBP At 27 June 2015 185.7 0.4 14.2 541.2 189.6 931.1 arrangements. Additions 13.4 – 0.5 78.4 21.6 113.9 No shares were bought back and cancelled by the Group in the period from 2 July 2016 to 8 September 2016. Acquisitions – – – 1.2 – 1.2 The effect of taxation and non-controlling interests on intangible asset amortisation, goodwill impairment, exceptional operating costs and the Disposals (0.2) – – (45.9) (2.0) (48.1) incremental effect of IAS 19 (revised) is shown below for each of the periods. Transfer categories – – – (2.1) 2.1 – Adjusted earnings per share At 2 July 2016 198.9 0.4 14.7 572.8 211.3 998.1 Governance Adjusted earnings per share is also presented to eliminate the impact of intangible asset amortisation, goodwill impairment, exceptional operating costs and the incremental effect of IAS 19 (revised) in order to show a ‘normalised’ earnings per share, reflecting the underlying performance of the business. Depreciation and impairment: Adjusted earnings were £94.7m in the period (2015: £78.0m) resulting in adjusted earnings per share of 220.5p (2015: 181.8p). At 28 June 2014 19.6 – 6.0 267.7 147.1 440.4 This is analysed as follows: Charge for the year 9.2 – 1.4 39.9 20.0 70.5 Disposals – – – (10.6) (6.6) (17.2) Year ended 2 July 2016 Amortisation and At 27 June 2015 28.8 – 7.4 297.0 160.5 493.7 Profit for goodwill Exceptional Adjusted profit Charge for the year 3.3 – 1.4 42.3 8.2 55.2 the year impairment operating costs IAS 19 (revised) for the year Disposals – – – (43.5) (1.6) (45.1) Financial statements £m £m £m £m £m Transfer categories – – – (0.8) 0.8 – Profit before taxation 99.8 3.0 – 39.1 141.9 At 2 July 2016 32.1 – 8.8 295.0 167.9 503.8 Less: Taxation (18.5) (0.6) – (7.8) (26.9)

Less: Non-controlling interests (11.6) (0.3) – (8.4) (20.3) Net book value: Adjusted profit attributable to equity holders of the parent 69.7 2.1 – 22.9 94.7 At 2 July 2016 166.8 0.4 5.9 277.8 43.4 494.3 Adjusted basic earnings per share (pence per share) 220.5 At 27 June 2015 156.9 0.4 6.8 244.2 29.1 437.4 Adjusted diluted earnings per share (pence per share) 219.3 At 28 June 2014 164.1 0.4 8.2 252.8 33.1 458.6 Shareholder information Year ended 27 June 2015 Amortisation and The net book value of leased assets and assets acquired under hire purchase contracts is: Profit for goodwill Exceptional Adjusted profit 2016 2015 the year impairment operating costs IAS 19 (revised) for the year £m £m £m £m £m £m £m Bus vehicles 2.7 1.3 Profit before taxation 78.7 9.1 8.8 22.3 118.9 Plant and equipment – 0.1 Less: Taxation (19.4) (0.9) (1.8) (4.6) (26.7) 2.7 1.4 Less: Non-controlling interests (7.1) (0.2) (2.5) (4.4) (14.2) Adjusted profit attributable to equity holders of the parent 52.2 8.0 4.5 13.3 78.0 Adjusted basic earnings per share (pence per share) 181.8 Adjusted diluted earnings per share (pence per share) 178.6 11. Dividends paid and proposed Dividends are one type of shareholder return, historically paid to our shareholders in April and November. 2016 2015 £m £m Declared and paid during the year Equity dividends on ordinary shares: Final dividend for 2015: 63.4p per share (2014: 59.0p) 27.2 25.3 Interim dividend for 2016: 28.33p per share (2015: 26.6p) 12.2 11.4 39.4 36.7

The Go-Ahead Group plc I www.go-ahead.com 135 Notes to the consolidated financial statements continued

13. Intangible assets The consolidated balance sheet contains significant intangible assets mainly in relation to goodwill, software, franchise bid costs and customer contracts. Goodwill, which arises when the Group acquire a business and pay a higher amount than the fair value of the net assets primarily due to the synergies the Group expect to create, is not amortised but is subject to annual impairment reviews. Software is amortised over its expected useful life. Franchise bid costs are amortised over the life of the franchise/franchise extension. Customer contracts are amortised over the life of the contract. For further details see ‘Software’, ‘Franchise bid costs’, ‘Franchise assets’, ‘Business combinations and goodwill’, ‘Impairment of assets’ and ‘Customer contracts’ in note 2. Franchise Rail franchise Customer Goodwill Software costs bid costs asset contracts Total £m £m £m £m £m £m Cost: At 28 June 2014 80.8 17.5 9.2 16.7 13.2 137.4 Additions – 3.8 2.3 – – 6.1 Disposals – (0.7) – – (1.3) (2.0) At 27 June 2015 80.8 20.6 11.5 16.7 11.9 141.5 Additions – 0.7 – – – 0.7 Acquisitions – – – – 0.4 0.4 At 2 July 2016 80.8 21.3 11.5 16.7 12.3 142.6

Amortisation and impairment: At 28 June 2014 – 14.8 7.9 16.7 10.3 49.7 Charge for the year – 1.7 0.8 – 1.7 4.2 Impairment 4.9 – – – – 4.9 Disposals – (0.7) – – (1.3) (2.0) At 27 June 2015 4.9 15.8 8.7 16.7 10.7 56.8 Charge for the year – 1.5 0.6 – 0.9 3.0 At 2 July 2016 4.9 17.3 9.3 16.7 11.6 59.8

Net book value: At 2 July 2016 75.9 4.0 2.2 – 0.7 82.8 At 27 June 2015 75.9 4.8 2.8 – 1.2 84.7 At 28 June 2014 80.8 2.7 1.3 – 2.9 87.7 Software costs Software costs capitalised exclude software that is integral to the related hardware. Franchise bid costs A part of the Group’s activities is the process of bidding for and securing franchises to operate rail services in the UK. Directly attributable, incremental costs incurred after achieving preferred bidder status or entering into a franchise extension are capitalised as an intangible asset and amortised over the life of the franchise/franchise extension. Rail franchise asset This reflects the cost of the right to operate a rail franchise, and relates to the cost of the intangible asset acquired on the handover of the franchise assets relating to the Southeastern rail franchise. The intangible asset was being amortised on a straight-line basis over the original life of the franchise. Customer contracts This relates to the value attributed to customer contracts and relationships purchased as part of the Group’s acquisitions. The value is calculated based on the unexpired term of the contracts at the date of acquisition and is amortised over that period. Goodwill Goodwill acquired through acquisitions has been allocated to individual cash-generating units for impairment testing on the basis of the Group’s business operations. The carrying value of goodwill is tested annually for impairment by cash-generating unit and is as follows: 2016 2015 £m £m Go South Coast 28.6 28.6 Brighton & Hove 12.7 12.7 Plymouth Citybus 13.0 13.0 Go-Ahead London 10.5 10.5 Go North East 2.7 2.7 Konectbus 3.6 3.6 Thames Travel 2.7 2.7 Carousel 2.1 2.1 75.9 75.9

136 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

13. Intangible assets The recoverable amount of goodwill has been determined based on a value in use calculation for each cash-generating unit, using cashflow projections The consolidated balance sheet contains significant intangible assets mainly in relation to goodwill, software, franchise bid costs and customer contracts. based on financial budgets and forecasts approved by senior management covering a three year period which have then been extended over an Goodwill, which arises when the Group acquire a business and pay a higher amount than the fair value of the net assets primarily due to the synergies appropriate period. The directors feel that the extended period is justified because of the long term stability of the relevant income streams. Growth has the Group expect to create, is not amortised but is subject to annual impairment reviews. Software is amortised over its expected useful life. Franchise been extrapolated forward from the end of the three year forecasts over a total period of ten years plus a terminal value using a growth rate of 3.0% bid costs are amortised over the life of the franchise/franchise extension. Customer contracts are amortised over the life of the contract. For further which reflects the directors’ view of long term growth rates in each business, and the long term recurrent nature of the businesses. details see ‘Software’, ‘Franchise bid costs’, ‘Franchise assets’, ‘Business combinations and goodwill’, ‘Impairment of assets’ and ‘Customer contracts’ The Group’s weighted average cost of capital has been initially calculated as 5.4% (2015: 8.8%). Given the current low weighted average cost of capital in note 2. the calculation of value in use has been initially derived based on the internal rate of return that the Group uses to appraise investments, currently 8.0%, Franchise Rail franchise Customer to identify any goodwill balances requiring further consideration and review. The economic conditions that the cash-generating units operate in are Goodwill Software costs bid costs asset contracts Total considered similar enough, primarily being UK based, to use the same discount rate. £m £m £m £m £m £m Cost: The calculation of value in use for each cash-generating unit is most sensitive to the forecast operating cashflows, the discount rate and the growth rate report Strategic used to extrapolate cashflows beyond the budget period. The operating cashflows are based on assumptions of revenue, employee costs and general At 28 June 2014 80.8 17.5 9.2 16.7 13.2 137.4 overheads. These assumptions are influenced by several internal and external factors. The directors consider the assumptions used to be consistent with Additions – 3.8 2.3 – – 6.1 the historical performance of each unit and to be realistically achievable in light of economic and industry measures and forecasts. Disposals – (0.7) – – (1.3) (2.0) A 0.5% increase in WACC or revenue growth falling by 1.0% are considered the most likely sensitivities that could impact recoverable amounts. These At 27 June 2015 80.8 20.6 11.5 16.7 11.9 141.5 sensitivities would not cause the carrying value of any of the businesses to exceed their recoverable amount. Additions – 0.7 – – – 0.7 Acquisitions – – – – 0.4 0.4 14. Business combinations At 2 July 2016 80.8 21.3 11.5 16.7 12.3 142.6 This note details acquisition transactions carried out in the current and prior periods. For accounting policies see ‘Business combinations and goodwill’ and ‘Customer contracts’ in note 2. Governance Amortisation and impairment: Year ended 2 July 2016 At 28 June 2014 – 14.8 7.9 16.7 10.3 49.7 On 13 October 2015, Go South Coast Limited, a wholly owned subsidiary of the Group, acquired certain tendered contracts, commercial operations Charge for the year – 1.7 0.8 – 1.7 4.2 and 13 buses from Excelsior Coaches Limited and Excelsior Transport Limited for a cash consideration of £0.5m. Impairment 4.9 – – – – 4.9 Net assets at date of acquisition: Disposals – (0.7) – – (1.3) (2.0) Total acquisitions At 27 June 2015 4.9 15.8 8.7 16.7 10.7 56.8 – Fair value to Group Charge for the year – 1.5 0.6 – 0.9 3.0 £m At 2 July 2016 4.9 17.3 9.3 16.7 11.6 59.8 Property, plant and equipment 1.2 Financial statements Intangible assets – customer contracts 0.4 Net book value: Interest-bearing loans and borrowings (1.1) At 2 July 2016 75.9 4.0 2.2 – 0.7 82.8 Net assets 0.5 At 27 June 2015 75.9 4.8 2.8 – 1.2 84.7 At 28 June 2014 80.8 2.7 1.3 – 2.9 87.7 Cash 0.5 Software costs Total consideration 0.5

Software costs capitalised exclude software that is integral to the related hardware. Interest-bearing loans and borrowings comprise finance leases and hire purchase commitments. Shareholder information Franchise bid costs Acquisition costs of less than £0.1m have been expensed through operating costs. A part of the Group’s activities is the process of bidding for and securing franchises to operate rail services in the UK. Directly attributable, incremental From the date of acquisition in the period, the acquisition recorded an operating profit of £0.1m and revenue of £2.1m. Had the acquisition been costs incurred after achieving preferred bidder status or entering into a franchise extension are capitalised as an intangible asset and amortised over the completed on the first day of the financial period, the impact on the Group’s operating profit would have been £0.2m and the impact on revenue would life of the franchise/franchise extension. have been £2.9m. Rail franchise asset Year ended 27 June 2015 This reflects the cost of the right to operate a rail franchise, and relates to the cost of the intangible asset acquired on the handover of the franchise On 8 December 2014, Plymouth Citybus Limited, a wholly owned subsidiary of the Group, acquired certain tendered contracts, commercial operations assets relating to the Southeastern rail franchise. The intangible asset was being amortised on a straight-line basis over the original life of the franchise. and nine buses from Western Greyhound Limited for a cash consideration of £0.4m. Customer contracts Net assets at date of acquisition: This relates to the value attributed to customer contracts and relationships purchased as part of the Group’s acquisitions. The value is calculated based Total acquisitions on the unexpired term of the contracts at the date of acquisition and is amortised over that period. – Fair value to Group Goodwill £m Goodwill acquired through acquisitions has been allocated to individual cash-generating units for impairment testing on the basis of the Group’s business Property, plant and equipment 0.4 operations. The carrying value of goodwill is tested annually for impairment by cash-generating unit and is as follows: Intangible assets – customer contracts – 2016 2015 £m £m 0.4 Go South Coast 28.6 28.6 Brighton & Hove 12.7 12.7 Cash 0.4 Plymouth Citybus 13.0 13.0 Total consideration 0.4 Go-Ahead London 10.5 10.5 Acquisition costs of less than £0.1m have been expensed through operating costs. Go North East 2.7 2.7 From the date of acquisition in the year ended 27 June 2015, the acquisition recorded an operating profit of £nil and revenue of £0.9m. Had the Konectbus 3.6 3.6 acquisition been completed on the first day of the financial period, the impact on the Group’s operating profit would have been £nil and the impact on Thames Travel 2.7 2.7 revenue would have been £1.5m. Carousel 2.1 2.1

75.9 75.9

The Go-Ahead Group plc I www.go-ahead.com 137 Notes to the consolidated financial statements continued

15. Assets classified as held for sale This note identifies any non-current assets or disposal groups that are held for sale. The carrying amounts of these assets will be recovered principally through a sale rather than through continuing use. For accounting policies see ‘Non-current assets held for sale’ in note 2. At 2 July 2016, assets held for sale, with a carrying value of £0.8m, related to property, plant and equipment available for sale, and are included in the regional bus segment. During the year ended 2 July 2016, assets held for sale were sold for a profit of £0.7m, which is included within operating costs in the income statement. At 27 June 2015, assets held for sale had a carrying value of £6.0m, consisting of £2.5m of property, plant and equipment available for sale and £3.5m of bus vehicles awaiting refinancing onto operating leases. 16. Inventories Inventory primarily consists of vehicle spares and fuel and is presented net of allowances for obsolete products. For accounting policies see ‘Inventories’ in note 2. 2016 2015 £m £m Raw materials and consumables 18.3 17.9

The amount of any write down of inventories recognised as an expense during the year is immaterial. 17. Trade and other receivables Trade and other receivables mainly consist of amounts owed by principal contracting authorities and other customers, amounts paid to suppliers in advance, amounts receivable from central government and taxes receivable. Trade receivables are shown net of an allowance for bad or doubtful debts. 2016 2015 £m £m Current Trade receivables 178.1 102.0 Less: Provision for impairment of receivables (1.7) (1.1) Trade receivables – net 176.4 100.9 Other receivables 32.7 66.5 Prepayments 48.5 18.8 Accrued income 45.4 23.0 Receivable from central government 34.0 50.9 337.0 260.1

2016 2015 £m £m Non-current Other receivables 1.6 0.8

As at 2 July 2016, the ageing analysis of trade receivables is as follows: Past due but not Neither past due impaired – more Total nor impaired Less than 30 days 30-60 days 60-90 days 90-120 days than 120 days £m £m £m £m £m £m £m 2016 176.4 166.5 3.0 3.4 2.2 0.5 0.8 2015 100.9 88.0 11.2 0.8 0.6 0.3 –

Trade receivables at nominal value of £1.7m (2015: £1.1m) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows: Total £m At 27 June 2015 1.1 Charge for the year 1.1 Utilised (0.2) Unused amounts reversed (0.3) At 2 July 2016 1.7

As at 2 July 2016, the ageing analysis of impaired and fully provided for trade receivables is as follows: 2016 2015 £m £m 60-90 days – – 90-120 days – – More than 120 days 1.7 1.1 1.7 1.1

138 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

15. Assets classified as held for sale 18. Cash and cash equivalents This note identifies any non-current assets or disposal groups that are held for sale. The carrying amounts of these assets will be recovered principally The majority of the Group’s cash is held in bank deposits which have a maturity of three months or less to comply with DfT short term liquidity through a sale rather than through continuing use. For accounting policies see ‘Non-current assets held for sale’ in note 2. requirements. For accounting policies see ‘Cash and cash equivalents’ in note 2. At 2 July 2016, assets held for sale, with a carrying value of £0.8m, related to property, plant and equipment available for sale, and are included in the 2016 2015 regional bus segment. £m £m Cash at bank and in hand 82.1 145.5 During the year ended 2 July 2016, assets held for sale were sold for a profit of £0.7m, which is included within operating costs in the income statement. Cash and cash equivalents 554.2 458.7 At 27 June 2015, assets held for sale had a carrying value of £6.0m, consisting of £2.5m of property, plant and equipment available for sale and £3.5m of 636.3 604.2 bus vehicles awaiting refinancing onto operating leases. Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods of between 16. Inventories report Strategic one day and three months, depending on the immediate cash requirements of the Group, and earn interest at the respective deposit rates. The fair Inventory primarily consists of vehicle spares and fuel and is presented net of allowances for obsolete products. For accounting policies see ‘Inventories’ value of cash and cash equivalents is not materially different from book value. in note 2. Amounts held by rail companies included in cash at bank and on short term deposit can be distributed only with the agreement of the DfT, normally up 2016 2015 £m £m to the value of distributable reserves or based on a working capital formula. As at 2 July 2016, balances amounting to £562.3m (2015: £537.6m) were Raw materials and consumables 18.3 17.9 restricted. Part of this amount is to cover deferred income for rail season tickets, which was £181.3m at 2 July 2016 (2015: £172.8m). Non cashflow movements The amount of any write down of inventories recognised as an expense during the year is immaterial. During the year ended 27 June 2015 the Group transferred in certain assets and liabilities relating to the handover of the GTR franchise. Initial cash 17. Trade and other receivables received by the Group as a result of the rail franchise handover is detailed below: GTR

Trade and other receivables mainly consist of amounts owed by principal contracting authorities and other customers, amounts paid to suppliers in Governance advance, amounts receivable from central government and taxes receivable. Trade receivables are shown net of an allowance for bad or doubtful debts. £m 2016 2015 Property, plant and equipment 6.9 £m £m Inventories 5.3 Current Trade and other receivables 7.1 Trade receivables 178.1 102.0 Trade and other payables (53.9) Less: Provision for impairment of receivables (1.7) (1.1) Provisions (0.2) Trade receivables – net 176.4 100.9 Cash and cash equivalents 34.8

Other receivables 32.7 66.5 – Financial statements Prepayments 48.5 18.8 Accrued income 45.4 23.0 19. Trade and other payables Trade and other payables mainly consist of amounts owed to suppliers that have been invoiced or accrued, deferred income and deferred season ticket Receivable from central government 34.0 50.9 income. They also include taxes and social security amounts due in relation to our role as an employer and amounts owed to central government. 337.0 260.1 2016 2015 £m £m Current 2016 2015 £m £m Trade payables 262.0 148.9 Shareholder information Non-current Other taxes and social security costs 30.6 22.8 Other receivables 1.6 0.8 Other payables 67.9 106.6 Deferred season ticket income 181.3 175.4 As at 2 July 2016, the ageing analysis of trade receivables is as follows: Accruals 122.1 106.0 Past due but not Deferred income 56.0 148.2 Neither past due impaired – more Total nor impaired Less than 30 days 30-60 days 60-90 days 90-120 days than 120 days Payable to central government 149.9 60.5 £m £m £m £m £m £m £m Government grants 2.7 4.5 2016 176.4 166.5 3.0 3.4 2.2 0.5 0.8 872.5 772.9 2015 100.9 88.0 11.2 0.8 0.6 0.3 –

Trade receivables at nominal value of £1.7m (2015: £1.1m) were impaired and fully provided for. Movements in the provision for impairment of 2016 2015 receivables were as follows: £m £m Total Non-current £m Government grants 4.3 5.2 At 27 June 2015 1.1 4.3 5.2 Charge for the year 1.1 Utilised (0.2) Terms and conditions of the above financial liabilities are as follows: Unused amounts reversed (0.3) • Trade payables are non-interest-bearing and are normally settled on 30 day terms At 2 July 2016 1.7 • Other payables are non-interest-bearing and have varying terms of up to 12 months As at 2 July 2016, the ageing analysis of impaired and fully provided for trade receivables is as follows: 2016 2015 £m £m 60-90 days – – 90-120 days – – More than 120 days 1.7 1.1 1.7 1.1

The Go-Ahead Group plc I www.go-ahead.com 139 Notes to the consolidated financial statements continued

20. Interest-bearing loans and borrowings The Group’s sources of borrowing for funding and liquidity requirements come from a range of committed bank facilities and a capital market bond. For accounting policies see ‘Interest-bearing loans and borrowings’ and ‘Cash and cash equivalents’ in note 2. Net cash/debt and interest-bearing loans and borrowings The net cash/debt position comprises cash, short term deposits, interest-bearing loans and borrowings, and can be summarised as: Year ended 2 July 2016 Current Non-current After one year Effective Within but not more than After more than interest rate one year five years five years Total % Maturity £m £m £m £m Syndicated loans (see below) 1.00 0-5 years – 113.0 – 113.0 Debt issue costs on syndicated loans (0.3) (0.6) – (0.9) £200m sterling 7.5 year bond (see below) 5.38 0-2 years – 200.0 – 200.0 Debt issue costs – – – – Finance leases and HP commitments (see note 21) 8.89 0-1 years 0.3 – – 0.3 Total interest-bearing loans and borrowings – 312.4 – 312.4 Debt issue costs 0.3 0.6 – 0.9 Total interest-bearing loans and borrowings (gross of debt issue costs) 0.3 313.0 – 313.3 Cash and short term deposits (note 18) (636.3) – – (636.3) Net cash (636.0) 313.0 – (323.0)

Restricted cash* 562.3 Adjusted net debt 239.3 Year ended 27 June 2015 Current Non-current After one year Effective Within but not more than After more than interest rate one year five years five years Total % Maturity £m £m £m £m Syndicated loans (see below) 1.01 0-5 years – 111.0 – 111.0 Debt issue costs on syndicated loans (0.4) (0.8) – (1.2) £200m sterling 7.5 year bond (see below) 5.38 0-3 years – 200.0 – 200.0 Debt issue costs (0.5) (0.1) – (0.6) Finance leases and HP commitments (see note 21) 9.55 0-3 years 0.2 0.1 – 0.3 Total interest-bearing loans and borrowings (0.7) 310.2 – 309.5 Debt issue costs 0.9 0.9 – 1.8 Total interest-bearing loans and borrowings (gross of debt issue costs) 0.2 311.1 – 311.3 Cash and short term deposits (note 18) (604.2) – – (604.2) Net cash (604.0) 311.1 – (292.9)

Restricted cash* 537.6 Adjusted net debt 244.7 * Restricted cash balances are amounts held by rail companies which are included in cash and short term deposits. The restricted cash can only be distributed with the agreement of the DfT, normally up to the value of revenue reserves or based on a working capital formula.

140 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

20. Interest-bearing loans and borrowings Analysis of Group net debt The Group’s sources of borrowing for funding and liquidity requirements come from a range of committed bank facilities and a capital market bond. Cash and cash Syndicated loan Hire purchase/ £200m For accounting policies see ‘Interest-bearing loans and borrowings’ and ‘Cash and cash equivalents’ in note 2. equivalents facility Dollar loan finance leases sterling bond Total £m £m £m £m £m £m Net cash/debt and interest-bearing loans and borrowings 28 June 2014 281.8 (120.0) (2.5) (2.0) (200.0) (42.7) The net cash/debt position comprises cash, short term deposits, interest-bearing loans and borrowings, and can be summarised as: Cashflow 287.6 9.0 2.5 1.7 – 300.8 Year ended 2 July 2016 On handover of rail franchise 34.8 – – – – 34.8 Current Non-current 27 June 2015 604.2 (111.0) – (0.3) (200.0) 292.9 After one year Cashflow 32.1 (2.0) – 1.1 – 31.2 Effective Within but not more than After more than On acquisition – – – (1.1) – (1.1) interest rate one year five years five years Total report Strategic % Maturity £m £m £m £m 2 July 2016 636.3 (113.0) – (0.3) (200.0) 323.0 Syndicated loans (see below) 1.00 0-5 years – 113.0 – 113.0 Syndicated loan facility Debt issue costs on syndicated loans (0.3) (0.6) – (0.9) On 16 July 2014, the Group re-financed and entered into a £280.0m five year syndicated loan facility. The loan facility is unsecured and interest is £200m sterling 7.5 year bond (see below) 5.38 0-2 years – 200.0 – 200.0 charged at LIBOR + Margin, where the margin is dependent upon the gearing of the Group. The facility had an initial maturity of July 2019, with two Debt issue costs – – – – one-year extensions, the second of which was agreed on 20 June 2016, extending the maturity of the facility to July 2021 from that date. Finance leases and HP commitments As at 2 July 2016, £113.0m (2015: £111.0m) of the facility was drawn down. (see note 21) 8.89 0-1 years 0.3 – – 0.3 Total interest-bearing loans and borrowings – 312.4 – 312.4 £200m sterling 7.5 year bond On 24 March 2010, the Group raised a £200m bond of 7.5 years maturing on 29 September 2017 with a coupon rate of 5.375%.

Debt issue costs 0.3 0.6 – 0.9 Governance Total interest-bearing loans and borrowings £200m term loan (gross of debt issue costs) 0.3 313.0 – 313.3 On 26 August 2016, the Group entered into a £200m term loan to provide flexibility on refinancing the £200m sterling 7.5 year bond. The facility is Cash and short term deposits (note 18) (636.3) – – (636.3) available to draw down between 4 September 2017 and 29 September 2017. Once drawn down, the facility is available to the Group with extensions Net cash (636.0) 313.0 – (323.0) for up to a further 24 months. The loan facility is unsecured and interest is charged at LIBOR + Margin, where the margin is dependant on the Group’s investment grade rating, currently BBB- and Baaa3.

Restricted cash* 562.3 Dollar loan Adjusted net debt 239.3 On 26 July 2010, a $10.0m five year facility was entered into for the purposes of financing our Go-Ahead North America joint venture. The joint venture ceased trading on 25 July 2014, and on termination of the joint venture all outstanding loans were repaid and the facility subsequently cancelled. Financial statements Year ended 27 June 2015 The dollar loan was unsecured and interest was charged at US$ LIBOR + Margin. Current Non-current After one year Debt issue costs Effective Within but not more than After more than There are debt issue costs of £0.9m (2015: £1.2m) on the syndicated loan facility. interest rate one year five years five years Total % Maturity £m £m £m £m The £200m sterling 7.5 year bond has debt issue costs of £nil (2015: £0.6m). Syndicated loans (see below) 1.01 0-5 years – 111.0 – 111.0 The Group is subject to two covenants in relation to its borrowing facilities. The covenants specify a maximum adjusted net debt to EBITDA and a Debt issue costs on syndicated loans (0.4) (0.8) – (1.2) minimum net interest cover. At the year end and throughout the year, the Group has not been in breach of any bank covenants. £200m sterling 7.5 year bond (see below) 5.38 0-3 years – 200.0 – 200.0 21. Finance lease and hire purchase commitments Shareholder information Debt issue costs (0.5) (0.1) – (0.6) This note details finance lease and hire purchase commitments. For accounting policies see ‘Interest bearing loans and borrowings’ in note 2. Finance leases and HP commitments The Group has finance leases and hire purchase contracts for bus vehicles and various items of plant and equipment. These contracts have no terms of (see note 21) 9.55 0-3 years 0.2 0.1 – 0.3 renewal or purchase option escalation clauses. Future minimum lease payments under finance leases and hire purchase contracts, together with the Total interest-bearing loans and borrowings (0.7) 310.2 – 309.5 present value of the net minimum lease payments, are as follows: Debt issue costs 0.9 0.9 – 1.8 2016 2015 Total interest-bearing loans and borrowings Minimum Present value Minimum Present value (gross of debt issue costs) 0.2 311.1 – 311.3 payments of payments payments of payments Cash and short term deposits (note 18) (604.2) – – (604.2) £m £m £m £m Net cash (604.0) 311.1 – (292.9) Within one year 0.3 0.3 0.2 0.2 After one year but not more than five years – – 0.1 0.1 Restricted cash* 537.6 Total minimum lease payments 0.3 0.3 0.3 0.3 Adjusted net debt 244.7 Less amounts representing finance charges – – – – * Restricted cash balances are amounts held by rail companies which are included in cash and short term deposits. The restricted cash can only be distributed with the agreement of the Present value of minimum lease payments 0.3 0.3 0.3 0.3 DfT, normally up to the value of revenue reserves or based on a working capital formula.

The Go-Ahead Group plc I www.go-ahead.com 141 Notes to the consolidated financial statements continued

22. Financial risk management objectives and policies This note details our treasury management and financial risk management objectives and policies, as well as the exposure and sensitivity of the Group to interest rate, liquidity, foreign exchange and credit risk, and the policies in place to monitor and manage these risks. Financial risk factors and management The Group’s principal financial instruments comprise bank loans, a sterling bond, hire purchase and finance lease contracts, and cash and short term deposits. The main purpose of these financial instruments is to provide an appropriate level of net debt to fund the Group’s activities, namely working capital, fixed asset expenditure, acquisitions and dividends. The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from its operations. It is Group policy to enter into derivative transactions, primarily fuel swaps and interest rate swaps. The purpose of these is to manage the fuel price and interest rate risks arising from the Group’s operations and its sources of finance. At the year end, the Group did not hold any interest rate swaps. It is, and has been throughout 2014/15 and 2015/16, the Group’s policy that no trading in derivatives shall be undertaken and derivatives are only purchased for internal benefit. The main financial risks arising from the Group’s activities are interest rate risk, liquidity risk and credit risk. Commodity price risk is managed via fuel derviatives. Risks arising from these are explained in note 23. Interest rate risk The Group borrows and deposits funds and is exposed to changes in interest rates. The Group’s policy toward cash deposits is to deposit cash short term on UK money markets. Interest payable on senior bank borrowings can be based on re-fixing the rate of interest over short periods of time of up to 36 months. The Group manages interest rate risk through a combination of fixed rate instruments and/or interest rate derivatives. During the years ended 2 July 2016 and 27 June 2015 the Group had no interest rate swaps in place. The Group has net cash and hence the present adverse risk is a decrease in interest rates. The maturity and interest rate profile of the financial assets and liabilities of the Group (excluding unamortised issue costs) as at 2 July 2016 and 27 June 2015 is as follows: Average Within More than rate 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total % £m £m £m £m £m £m £m Year ended 2 July 2016 Floating rate (assets)/liabilities Variable rate loans 1.00 – – – – 113.0 – 113.0 Gross floating rate liabilities – – – – 113.0 – 113.0 Cash assets 0.55 (636.3) – – – – – (636.3) Net floating rate (assets)/liabilities (636.3) – – – 113.0 – (523.3) Fixed rate liabilities £200m sterling 7.5 year bond 5.38 – 200.0 – – – – 200.0 Obligations under finance lease and hire purchase contracts 8.89 0.3 – – – – – 0.3 Net fixed rate liabilities 0.3 200.0 – – – – 200.3

Year ended 27 June 2015 Floating rate (assets)/liabilities Variable rate loans 1.10 – – – – 111.0 – 111.0 Gross floating rate liabilities – – – – 111.0 – 111.0 Cash assets 0.54 (604.2) – – – – – (604.2) Net floating rate (assets)/liabilities (604.2) – – – 111.0 – (493.2) Fixed rate liabilities £200m sterling 7.5 year bond 5.38 – – 200.0 – – – 200.0 Obligations under finance lease and hire purchase contracts 9.55 0.2 0.1 – – – – 0.3 Net fixed rate liabilities 0.2 0.1 200.0 – – – 200.3

The expected maturity of the financial assets and liablities in the table above is the same as the contractual maturity of the financial assets and liabilities. Interest on financial instruments classified as floating rate is re-priced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Group that are not included in the tables above are non-interest bearing and are therefore not subject to interest rate risk.

142 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

22. Financial risk management objectives and policies Interest rate risk table This note details our treasury management and financial risk management objectives and policies, as well as the exposure and sensitivity of the Group The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s to interest rate, liquidity, foreign exchange and credit risk, and the policies in place to monitor and manage these risks. profit before tax (through the impact on floating rate borrowings) based on recent historic changes. Increase/ Effect on profit Effect on Financial risk factors and management decrease in before tax equity The Group’s principal financial instruments comprise bank loans, a sterling bond, hire purchase and finance lease contracts, and cash and short term basis points £m £m deposits. The main purpose of these financial instruments is to provide an appropriate level of net debt to fund the Group’s activities, namely working 2016 capital, fixed asset expenditure, acquisitions and dividends. The Group has various other financial instruments such as trade receivables and trade GBP 50.0 (0.5) (0.5) payables, which arise directly from its operations. GBP (50.0) 0.5 0.5 It is Group policy to enter into derivative transactions, primarily fuel swaps and interest rate swaps. The purpose of these is to manage the fuel price and 2015 interest rate risks arising from the Group’s operations and its sources of finance. At the year end, the Group did not hold any interest rate swaps. report Strategic GBP 50.0 (0.5) (0.5) It is, and has been throughout 2014/15 and 2015/16, the Group’s policy that no trading in derivatives shall be undertaken and derivatives are only GBP (50.0) 0.5 0.5 purchased for internal benefit. The main financial risks arising from the Group’s activities are interest rate risk, liquidity risk and credit risk. Commodity price risk is managed via fuel Liquidity risk derviatives. Risks arising from these are explained in note 23. The Group has in place a £280.0m syndicated loan facility which allows the Group to maintain liquidity within the desired gearing range. On 16 July 2014, the Group re-financed and entered into a £280.0m five year syndicated loan facility, with two one-year extensions replacing the Interest rate risk previous £275.0m five year syndicated loan facility. The second of the one-year extensions was agreed on 20 June 2016, extending the maturity of the The Group borrows and deposits funds and is exposed to changes in interest rates. The Group’s policy toward cash deposits is to deposit cash short current facility to July 2021. term on UK money markets. Interest payable on senior bank borrowings can be based on re-fixing the rate of interest over short periods of time of up to 36 months. On 24 March 2010, the Group raised a £200m bond of 7.5 years maturing on 29 September 2017. The level of drawdown and prevailing interest rates Governance The Group manages interest rate risk through a combination of fixed rate instruments and/or interest rate derivatives. During the years ended 2 July are detailed in note 20. 2016 and 27 June 2015 the Group had no interest rate swaps in place. The Group has net cash and hence the present adverse risk is a decrease in On 26 August 2016, the Group entered into a £200m term loan to provide flexibility on refinancing the £200m sterling 7.5 year bond. The facility is interest rates. available to draw down between 4 September 2017 and 29 September 2017. Once drawn down, the facility is available to the Group with extensions The maturity and interest rate profile of the financial assets and liabilities of the Group (excluding unamortised issue costs) as at 2 July 2016 and 27 June for up to a further 24 months. 2015 is as follows: Available liquidity as at 2 July 2016 and 27 June 2015 was as follows: Average Within More than 2016 2015 rate 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total £m £m % £m £m £m £m £m £m £m Five year syndicated facility 2019/2021 280.0 280.0 Financial statements Year ended 2 July 2016 £200m 7.5 year 5.375% sterling bond 2017 200.0 200.0 Floating rate (assets)/liabilities Total core facilities 480.0 480.0 Variable rate loans 1.00 – – – – 113.0 – 113.0 Amount drawn down at 2 July 2016 313.0 311.0 Gross floating rate liabilities – – – – 113.0 – 113.0 Headroom 167.0 169.0 Cash assets 0.55 (636.3) – – – – – (636.3) Net floating rate (assets)/liabilities (636.3) – – – 113.0 – (523.3) The Group’s bus vehicles can be financed by hire purchase or finance lease arrangements, or term loans at fixed rates of interest over two to five year Fixed rate liabilities primary borrowing periods. This provides a regular inflow of funding to cover expenditure as it arises. £200m sterling 7.5 year bond 5.38 – 200.0 – – – – 200.0 Foreign currency risk Shareholder information Obligations under finance lease and hire purchase The Group has foreign exchange exposure in respect of cashflow commitments to both its operations in Germany and in Singapore, of which neither contracts 8.89 0.3 – – – – – 0.3 are currently material to the Group. Net fixed rate liabilities 0.3 200.0 – – – – 200.3 Credit risk

The Group’s credit risk is primarily attributable to its trade receivables (see note 17) and cash deposits (see note 18). The maximum credit risk exposure Year ended 27 June 2015 of the Group comprises the amounts presented in the balance sheet, which are stated net of provisions for doubtful debt. A provision is made where Floating rate (assets)/liabilities there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of future cashflows. Variable rate loans 1.10 – – – – 111.0 – 111.0 The majority of the Group’s receivables are with public (or quasi-public) bodies (such as the DfT). The Group does not consider these counterparties to Gross floating rate liabilities – – – – 111.0 – 111.0 be a significant credit risk. Risk of exposure to non-return of cash on deposit is managed through a treasury policy of holding deposits with banks rated Cash assets 0.54 (604.2) – – – – – (604.2) A- or A3 or above by at least one of the credit rating agencies. The treasury policy outlines the maximum level of deposit that can be placed with any Net floating rate (assets)/liabilities (604.2) – – – 111.0 – (493.2) one given financial institution. Fixed rate liabilities £200m sterling 7.5 year bond 5.38 – – 200.0 – – – 200.0 Obligations under finance lease and hire purchase contracts 9.55 0.2 0.1 – – – – 0.3 Net fixed rate liabilities 0.2 0.1 200.0 – – – 200.3

The Go-Ahead Group plc I www.go-ahead.com 143 Notes to the consolidated financial statements continued

22. Financial risk management objectives and policies continued Contractual payments The tables below summarise the maturity profile of the Group’s financial liabilities at 2 July 2016 and 27 June 2015 based on contractual undiscounted payments. Year ended 2 July 2016 Less than More than On demand 3 months 3-12 months 1-5 years 5 years Total £m £m £m £m £m £m Interest-bearing loans and borrowings – 0.2 0.9 116.9 – 118.0 £200m sterling 7.5 year bond – 10.7 – 202.7 – 213.4 Other financial liabilities – 2.4 7.9 4.1 – 14.4 Trade and other payables 24.0 483.4 86.7 – – 594.1 24.0 496.7 95.5 323.7 – 939.9 Year ended 27 June 2015 Less than More than On demand 3 months 3-12 months 1-5 years 5 years Total £m £m £m £m £m £m Interest-bearing loans and borrowings – 0.2 0.7 113.8 – 114.7 £200m sterling 7.5 year bond – 10.6 – 212.9 – 223.5 Other financial liabilities – 4.8 14.3 5.5 – 24.6 Trade and other payables 20.0 321.5 80.4 – – 421.9 20.0 337.1 95.4 332.2 – 784.7 Managing capital The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. Details of the issued capital and reserves are shown in note 25. Details of interest-bearing loans and borrowings are shown in note 20. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 2 July 2016 and 27 June 2015. The Group applies the primary objective by managing its capital structure such that net debt (adjusted to exclude restricted cash) to EBITDA* is within a range which retains an investment grade debt rating of at least BBB-. In the year ended 2 July 2011, the Group obtained investment grade long term credit ratings from Standard & Poor’s and Moody’s as follows: Standard & Poor’s BBB- (Stable outlook) Moody’s Baa3 (Stable outlook) Those ratings have been maintained in the year ended 2 July 2016. The Group’s policy is to maintain an adjusted net debt to EBITDA ratio of 1.5x to 2.5x. The Group’s calculation of adjusted net debt is set out in note 20 and includes cash and short term deposits, interest-bearing loans and borrowings, and excludes restricted cash. During the year no specific actions were required to be taken by the Group with regard to this ratio or to ensure the investment grade debt rating. Our primary financial covenant under the 2021 syndicated loan facility is an adjusted net debt to EBITDA ratio of not more than 3.5x and at 2 July 2016, was 1.36x (2015: 1.32x). Under the previous 2016 syndicated loan facility we adjusted for the effect of IAS 19 (revised) of £37.0m (2015: £20.0m) resulting in a restated adjusted net debt to EBITDA ratio of 1.12x (2015: 1.19x). * Operating profit before interest, tax, depreciation, amortisation, goodwill impairment and exceptional operating costs. Operating leases The Group uses operating leases for bus and coach purchases across the Group primarily where the vehicles service specific contracts to mitigate the risk of ownership at the end of the contract. This results in £1.1m (2015: £1.1m) of cost within operating charges which would otherwise have been charged to interest. The Group holds operating leases for its bus fleet with an asset capital value of £24.6m (2015: £20.1m). The majority of assets in the rail division are financed by operating leases, in particular rolling stock.

144 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

22. Financial risk management objectives and policies continued 23. Derivatives and financial instruments A derivative is a security whose price is dependent upon or derived from an underlying asset. The Group uses energy derivatives to hedge its risks Contractual payments associated with fuel price fluctuations. Financial instruments held by the Group include fuel hedge derivatives and finance lease/hire purchase contracts. The tables below summarise the maturity profile of the Group’s financial liabilities at 2 July 2016 and 27 June 2015 based on contractual For accounting policies see ‘Financial assets and derivatives’, ‘Fair value measurement’ and ‘Interest bearing loans and borrowings’ in note 2. undiscounted payments. a. Fair values Year ended 2 July 2016 Less than More than The fair values of the Group’s financial instruments carried in the financial statements have been reviewed as at 2 July 2016 and 27 June 2015 and On demand 3 months 3-12 months 1-5 years 5 years Total are as follows: £m £m £m £m £m £m 2016 2015 Interest-bearing loans and borrowings – 0.2 0.9 116.9 – 118.0 £m £m

£200m sterling 7.5 year bond – 10.7 – 202.7 – 213.4 Non-current assets 0.2 – report Strategic Other financial liabilities – 2.4 7.9 4.1 – 14.4 Current assets 0.6 – Trade and other payables 24.0 483.4 86.7 – – 594.1 0.8 – 24.0 496.7 95.5 323.7 – 939.9 Current liabilities (10.3) (19.1) Non-current liabilities (4.1) (5.5) Year ended 27 June 2015 Less than More than (14.4) (24.6) On demand 3 months 3-12 months 1-5 years 5 years Total Net financial derivatives (13.6) (24.6) £m £m £m £m £m £m Interest-bearing loans and borrowings – 0.2 0.7 113.8 – 114.7 Year ended 2 July 2016 Held for trading – £200m sterling 7.5 year bond – 10.6 – 212.9 – 223.5 Fair value through Total Governance Other financial liabilities – 4.8 14.3 5.5 – 24.6 Amortised cost profit and loss carrying value Fair value Trade and other payables 20.0 321.5 80.4 – – 421.9 £m £m £m £m 20.0 337.1 95.4 332.2 – 784.7 Fuel price derivatives – (13.6) (13.6) (13.6) Net financial derviatives – (13.6) (13.6) (13.6) Managing capital Obligations under finance lease and hire purchase contracts (0.3) – (0.3) (0.3) The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to (0.3) (13.6) (13.9) (13.9) support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. Details of the issued capital and reserves are shown in note 25. Details of interest-bearing loans and borrowings are shown in Year ended 27 June 2015 Financial statements note 20. Held for trading – Fair value through Total To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new Amortised cost profit and loss carrying value Fair value shares. No changes were made in the objectives, policies or processes during the years ended 2 July 2016 and 27 June 2015. £m £m £m £m The Group applies the primary objective by managing its capital structure such that net debt (adjusted to exclude restricted cash) to EBITDA* is within a Fuel price derivatives – (24.6) (24.6) (24.6) range which retains an investment grade debt rating of at least BBB-. Net financial derivatives – (24.6) (24.6) (24.6) In the year ended 2 July 2011, the Group obtained investment grade long term credit ratings from Standard & Poor’s and Moody’s as follows: Obligations under finance lease and hire purchase contracts (0.3) – (0.3) (0.3) Standard & Poor’s BBB- (Stable outlook) (0.3) (24.6) (24.9) (24.9) Shareholder information Moody’s Baa3 (Stable outlook) The fair value of all other assets and liabilities in notes 17, 19 and 20 is not significantly different from their carrying amount, with the exception of the Those ratings have been maintained in the year ended 2 July 2016. £200m sterling 7.5 year bond which has a fair value of £209.5m (2015: £213.7m) but is carried at its amortised cost of £200.0m (2015: £199.4m). The The Group’s policy is to maintain an adjusted net debt to EBITDA ratio of 1.5x to 2.5x. The Group’s calculation of adjusted net debt is fair value of the £200m sterling 7.5 year bond has been determined by reference to the price available from the market on which the bond is traded. set out in note 20 and includes cash and short term deposits, interest-bearing loans and borrowings, and excludes restricted cash. During the year no The fuel price derivatives were valued externally by the respective banks by comparison with the market fuel price for the relevant date. specific actions were required to be taken by the Group with regard to this ratio or to ensure the investment grade debt rating. All other fair values shown above have been calculated by discounting cashflows at prevailing interest rates. Our primary financial covenant under the 2021 syndicated loan facility is an adjusted net debt to EBITDA ratio of not more than 3.5x and at 2 July 2016, The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: was 1.36x (2015: 1.32x). Under the previous 2016 syndicated loan facility we adjusted for the effect of IAS 19 (revised) of £37.0m (2015: £20.0m) Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities resulting in a restated adjusted net debt to EBITDA ratio of 1.12x (2015: 1.19x). Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly * Operating profit before interest, tax, depreciation, amortisation, goodwill impairment and exceptional operating costs. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data Operating leases As at 2 July 2016, the Group has used a level 2 valuation technique to determine the fair value of all financial instruments. The Group uses operating leases for bus and coach purchases across the Group primarily where the vehicles service specific contracts to mitigate the risk of ownership at the end of the contract. This results in £1.1m (2015: £1.1m) of cost within operating charges which would otherwise have been During the year ended 2 July 2016, there were no transfers between valuation levels. charged to interest. The Group holds operating leases for its bus fleet with an asset capital value of £24.6m (2015: £20.1m). The majority of assets in the rail division are financed by operating leases, in particular rolling stock.

The Go-Ahead Group plc I www.go-ahead.com 145 Notes to the consolidated financial statements continued

23. Derivatives and financial instruments continued b. Hedging activities Fuel derivatives The Group is exposed to commodity price risk as a result of fuel usage. The Group closely monitors fuel prices and uses fuel derivatives to hedge its exposure to increases in fuel prices, when it deems this to be appropriate. Bus As at 2 July 2016 the Group had derivatives against bus fuel of 370 million litres for the five years ending June 2021. The fair value of the asset or liability has been recognised on the balance sheet. The value has been generated since the date of the acquisition of the instruments due to the movement in market fuel prices. As at 2 July 2016 the amounts hedged are as follows: 2017 2018 2019* 2020* 2021* Actual percentage hedged 100% 100% 60% 30% 10% Litres hedged (million) 125 124 73 36 12 Price (pence per litre) 36.4 34.7 32.3 33.4 35.1 * Assuming consistent usage and that hedging is completed at June 2016 market price. Rail As at 2 July 2016 the Group had derivatives against rail fuel of 12 million litres for the year ended 1 July 2017 and 4 million litres for the 2018 financial year, representing the anticipated fuel usage in London Midland. The fair value of the asset or liability has been recognised on the balance sheet. The value has been generated since the date of the acquisition of the instruments due to the movement in market fuel prices. The movement during the year on the hedging reserve was £9.2m credit (net of tax) (2015: £15.8m debit (net of tax)) taken through other comprehensive income. 24. Provisions A provision is a liability recorded in the consolidated balance sheet, where there is uncertainty over the timing or amount that will be paid, and is therefore often estimated. The main provisions we hold are in relation to uninsured claims and dilapidation provisions relating to franchise commitments. For accounting policies see ‘Provisions’ and ‘Uninsured liabilities’ in note 2. Franchise Uninsured commitments claims Other Total £m £m £m £m At 27 June 2015 63.2 41.3 3.1 107.6 Provided (after discounting) 12.4 20.8 0.9 34.1 Utilised (12.9) (16.0) – (28.9) Released (3.4) (5.6) (0.5) (9.5) Unwinding of discounting 0.8 1.6 – 2.4 At 2 July 2016 60.1 42.1 3.5 105.7

2016 2015 £m £m Current 32.0 75.4 Non-current 73.7 32.2 105.7 107.6

Franchise commitments comprise £57.7m (2015: £60.1m) dilapidation provisions on vehicles, depots and stations across our three active rail franchises, and £2.4m (2015: £3.1m) provisions relating to other franchise commitments. Of the dilapidations provisions, £12.1m (2015: £52.1m) are classified as current. All of the £2.4m (2015: £3.1m) provision relating to other franchise commitments is classified as current. During the year £3.4m (2015: £9.3m) of provisions previously provided were released following the successful renegotiation of certain contract conditions. The dilapidations will be incurred as part of a rolling maintenance contract over the next three years. The provisions are based on management’s assessment of most probable outcomes, supported where appropriate by valuations from professional external advisors. Uninsured claims represent the cost to the Group to settle claims for incidents occurring prior to the balance sheet date based on an assessment of the expected settlement, together with an estimate of settlements that will be made in respect of incidents that have not yet been reported to the Group by the insurer. Of the uninsured claims, £16.0m (2015: £19.1m) are classified as current and £26.1m (2015: £22.2m) are classified as non-current based on past experience of uninsured claims paid out annually. It is estimated that the majority of uninsured claims will be settled within the next six years. Within other provisions, £3.2m (2015: £2.8m) relates to dilapidations in the bus division of which £1.2m (2015: £0.8m) are classified as current, and £2.0m (2015: £2.0m) are classified as non-current. It is expected that the dilapidations will be incurred within two to five years. The remaining other current provision of £0.3m (2015: £0.3m) relates to completion claims regarding the sale of our aviation business.

146 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

23. Derivatives and financial instruments continued 25. Issued capital and reserves Called up share capital is the number of shares in issue at their par value. For accounting policies see ‘Treasury shares’ in note 2. b. Hedging activities Allotted, called up and fully paid Fuel derivatives 2016 2015 The Group is exposed to commodity price risk as a result of fuel usage. The Group closely monitors fuel prices and uses fuel derivatives to hedge its Millions £m Millions £m exposure to increases in fuel prices, when it deems this to be appropriate. As at 2 July 2016 and 27 June 2015 46.9 4.7 46.9 4.7 Bus The Group has one class of ordinary shares which carry no right to fixed income and have a par value of 10p per share. As at 2 July 2016 the Group had derivatives against bus fuel of 370 million litres for the five years ending June 2021. The fair value of the asset or liability has been recognised on the balance sheet. The value has been generated since the date of the acquisition of the instruments due to the movement in Share capital

market fuel prices. Share capital represents proceeds on issue of the Group’s equity, both nominal value and share premium. report Strategic As at 2 July 2016 the amounts hedged are as follows: Reserve for own shares 2017 2018 2019* 2020* 2021* The reserve for own shares is in respect of 4,017,412 ordinary shares (8.6% of share capital), of which 115,182 are held for LTIP and DSBP Actual percentage hedged 100% 100% 60% 30% 10% arrangements. Litres hedged (million) 125 124 73 36 12 The remaining shares were purchased in order to enhance shareholders’ returns and are being held as treasury shares for future issue in appropriate Price (pence per litre) 36.4 34.7 32.3 33.4 35.1 circumstances. During the year ended 2 July 2016 the Group has repurchased 172,964 shares (2015: no shares purchased). The Group has not cancelled * Assuming consistent usage and that hedging is completed at June 2016 market price. any shares during the year (2015: no shares cancelled). Rail Share premium reserve As at 2 July 2016 the Group had derivatives against rail fuel of 12 million litres for the year ended 1 July 2017 and 4 million litres for the 2018 financial The share premium reserve represents the premium on shares that have been issued to fund or part fund acquisitions made by the Group. This year, representing the anticipated fuel usage in London Midland. The fair value of the asset or liability has been recognised on the balance sheet. The treatment is in line with Section 612 of the Companies Act 2006. Governance value has been generated since the date of the acquisition of the instruments due to the movement in market fuel prices. Hedging reserve The movement during the year on the hedging reserve was £9.2m credit (net of tax) (2015: £15.8m debit (net of tax)) taken through other The hedging reserve records the movement in value of fuel price derivatives, offset by any movements recognised directly in equity. comprehensive income. Capital redemption reserve 24. Provisions The redemption reserve reflects the nominal value of cancelled shares. A provision is a liability recorded in the consolidated balance sheet, where there is uncertainty over the timing or amount that will be paid, and is therefore often estimated. The main provisions we hold are in relation to uninsured claims and dilapidation provisions relating to franchise commitments. 26. Commitments For accounting policies see ‘Provisions’ and ‘Uninsured liabilities’ in note 2. A commitment is a contractual obligation to make a payment in the future, mainly in relation to operating leases and agreements to procure assets. Financial statements These amounts are not recorded in the consolidated financial statements as we have not yet received the goods or services from the supplier. Franchise Uninsured commitments claims Other Total Capital commitments £m £m £m £m 2016 2015 At 27 June 2015 63.2 41.3 3.1 107.6 £m £m Provided (after discounting) 12.4 20.8 0.9 34.1 Contracted for but not provided – acquisition of property, plant and equipment 78.3 52.7 Utilised (12.9) (16.0) – (28.9) Contractual commitments Released (3.4) (5.6) (0.5) (9.5) The Group had contractual commitments, regarding payments to the DfT in respect of the Southern franchise, which transferred to GTR on 26 July Unwinding of discounting 0.8 1.6 – 2.4 2015 of £nil at 2 July 2016 (27 June 2015: £22.5m payable within one year). Shareholder information At 2 July 2016 60.1 42.1 3.5 105.7

2016 2015 £m £m Current 32.0 75.4 Non-current 73.7 32.2 105.7 107.6

The Go-Ahead Group plc I www.go-ahead.com 147 Notes to the consolidated financial statements continued

26. Commitments continued Operating lease commitments – Group as lessee The Group has entered into commercial leases on certain properties and other items. Renewals are at the option of the lessee. There are no restrictions placed upon the lessee by entering into these leases. Future minimum rentals payable under non-cancellable operating leases as at 2 July 2016 and 27 June 2015 were as follows: As at 2 July 2016 Rail rolling Rail access Bus vehicles Bus property stock charges Rail other £m £m £m £m £m Within one year 10.6 0.6 525.6 608.0 202.7 In the second to fifth years inclusive 12.3 3.0 1,801.2 1,264.9 571.8 Over five years 2.8 2.6 86.7 57.3 29.4 25.7 6.2 2,413.5 1,930.2 803.9 As at 27 June 2015 Rail rolling Rail access Bus vehicles Bus property stock charges Rail other £m £m £m £m £m Within one year 14.5 2.3 484.3 618.8 166.4 In the second to fifth years inclusive 12.6 5.4 1,791.7 1,810.9 541.9 Over five years 0.7 3.9 280.0 251.0 71.9 27.8 11.6 2,556.0 2,680.7 780.2 Operating lease commitments – Group as lessor The Group’s train operating companies hold agreements under which they sub-lease rolling stock, and agreements with Network Rail for access to the railway infrastructure (track, stations and depots). Future minimum rentals payable under non-cancellable operating leases as at 2 July 2016 and 27 June 2015 were as follows: 2016 2015 Land and Other rail Land and Other rail buildings agreements buildings agreements £m £m £m £m Within one year 3.5 2.9 4.8 2.8 In the second to fifth years inclusive 2.5 2.8 11.7 – Over five years – – 2.1 – 6.0 5.7 18.6 2.8 Performance bonds The Group has provided bank guaranteed performance bonds of £76.2m (2015: £124.3m), a loan guarantee bond of £36.3m (2015: £36.3m), and season ticket bonds of £227.1m (2015: £207.2m) to the DfT in support of the Group’s rail franchise operations. To support subsidiary companies in their normal course of business, the Group has indemnified certain banks and insurance companies who have issued certain performance bonds and a letter of credit. The letter of credit at 2 July 2016 is £45.0m (2015: £45.0m). The Group has a bond of $10.9m SGD (2015: $nil SGD) to the Land Transport Authority of Singapore in support of the Group’s Singapore bus operations. At the year-end exchange rate this equates to £6.1m (2015: £nil).

148 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

26. Commitments continued 27. Retirement benefit obligations The Group operates a defined contribution pension scheme and a workplace saving scheme for our employees. We also administer a defined benefit Operating lease commitments – Group as lessee pension scheme, which is closed to new entrants and future accruals. The train operating companies participate in the Rail Pension Scheme, a defined The Group has entered into commercial leases on certain properties and other items. Renewals are at the option of the lessee. There are no restrictions benefit scheme which covers the whole of the UK rail industry. This is partitioned into sections and the Group is responsible for the funding of these placed upon the lessee by entering into these leases. schemes whilst it operates the relevant franchise. For accounting policies see ‘Retirement benefits’ in note 2. Future minimum rentals payable under non-cancellable operating leases as at 2 July 2016 and 27 June 2015 were as follows: Retirement benefit obligations consist of the following: As at 2 July 2016 2016 2015 Rail rolling Rail access Bus Rail Total Bus Rail Total Bus vehicles Bus property stock charges Rail other £m £m £m £m £m £m £m £m £m £m £m

Pre-tax pension scheme liabilities (2.7) – (2.7) (59.5) – (59.5) report Strategic Within one year 10.6 0.6 525.6 608.0 202.7 In the second to fifth years inclusive 12.3 3.0 1,801.2 1,264.9 571.8 Over five years 2.8 2.6 86.7 57.3 29.4 2016 2015 25.7 6.2 2,413.5 1,930.2 803.9 Bus Rail Total Bus Rail Total £m £m £m £m £m £m As at 27 June 2015 Remeasurement gains/(losses) due to: Rail rolling Rail access Bus vehicles Bus property stock charges Rail other Experience on benefit obligations 68.8 (0.4) 68.4 21.9 32.9 54.8 £m £m £m £m £m Changes in demographic assumptions (10.6) – (10.6) – – – Within one year 14.5 2.3 484.3 618.8 166.4 Changes in financial assumptions (102.1) (184.0) (286.1) (93.5) (206.0) (299.5)

In the second to fifth years inclusive 12.6 5.4 1,791.7 1,810.9 541.9 Salary cap introduction – 48.1 48.1 – – – Governance Over five years 0.7 3.9 280.0 251.0 71.9 Return on assets greater than discount rate 99.4 102.2 201.6 72.3 65.8 138.1 27.8 11.6 2,556.0 2,680.7 780.2 Franchise adjustment movement – 79.4 79.4 – 131.2 131.2 Remeasurement gains on defined benefit pension plans 55.5 45.3 100.8 0.7 23.9 24.6 Operating lease commitments – Group as lessor The Group’s train operating companies hold agreements under which they sub-lease rolling stock, and agreements with Network Rail for access to the Bus schemes railway infrastructure (track, stations and depots). Future minimum rentals payable under non-cancellable operating leases as at 2 July 2016 and 27 June 2015 were as follows: The Go-Ahead Group Pension Plan

For the majority of bus employees, the Group operates one main pension scheme, The Go-Ahead Group Pension Plan (the Go-Ahead Plan), which Financial statements 2016 2015 consists of a funded defined benefit scheme and a defined contribution section as follows. Land and Other rail Land and Other rail buildings agreements buildings agreements The defined contribution section of the Go-Ahead Plan is not contracted-out of the State Second Pension Scheme. It is now closed to new entrants and £m £m £m £m has been replaced by a workplace saving scheme, which is also a defined contribution pension scheme. The expense recognised for the defined Within one year 3.5 2.9 4.8 2.8 contribution section of the Go-Ahead Plan is £9.9m (2015: £11.3m), being the contributions paid and payable. The expense recognised for the In the second to fifth years inclusive 2.5 2.8 11.7 – workplace saving scheme is £2.8m (2015: £1.9m) being the contributions paid and payable. Over five years – – 2.1 – The defined benefit section of the Go-Ahead Plan is contracted-out of the State Second Pension Scheme and provides benefits based on a member’s 6.0 5.7 18.6 2.8 final salary. The assets of the scheme are held in a separate trustee-administered fund. Contributions to this section are assessed in accordance with the

advice of an independent qualified actuary. The defined benefit section of The Go-Ahead Group Pension Plan has been closed to new entrants and Shareholder information Performance bonds closed to future accrual. The Group has provided bank guaranteed performance bonds of £76.2m (2015: £124.3m), a loan guarantee bond of £36.3m (2015: £36.3m), and The Go-Ahead Plan is a plan for related companies within the Group where risks are shared. The overall costs of the Go-Ahead Plan have been season ticket bonds of £227.1m (2015: £207.2m) to the DfT in support of the Group’s rail franchise operations. recognised in the Group’s financial statements according to IAS 19 (revised). Each of the participating companies accounts on the basis of contributions To support subsidiary companies in their normal course of business, the Group has indemnified certain banks and insurance companies who have issued paid by that company. The Group accounts for the difference between the aggregate IAS 19 (revised) cost of the scheme and the aggregate certain performance bonds and a letter of credit. The letter of credit at 2 July 2016 is £45.0m (2015: £45.0m). contributions paid. The Group has a bond of $10.9m SGD (2015: $nil SGD) to the Land Transport Authority of Singapore in support of the Group’s Singapore bus The Go-Ahead Plan is governed by a Trustee Company and is subject to regulation from the Pensions Regulator and relevant UK legislation. This operations. At the year-end exchange rate this equates to £6.1m (2015: £nil). regulatory framework requires the Trustees of the Go-Ahead Plan and the Group to agree upon the assumptions underlying the funding target, and the necessary contributions as part of each triennial valuation. The last actuarial valuation of the Go-Ahead Plan had an effective date of 31 March 2015. The investment strategy of the Go-Ahead Plan, which aims to meet liabilities as they fall due, is to invest plan assets in a mix of equities, other return seeking assets and liability driven investments to maximise the return on plan assets and minimise risks associated with lower than expected returns on plan assets. Trustees are required to regularly review investment strategy. Other pension plans Some employees of Plymouth Citybus have entitlement to a Devon County Council defined benefit plan. This scheme is externally funded and is now closed to new entrants. Contributions to the scheme are assessed in accordance with the advice of an independent qualified actuary. Summary of bus schemes year end assumptions 2016 2015 % % Retail price index inflation 2.9 3.3 Consumer price index inflation 1.9 2.3 Discount rate 2.8 3.8 Rate of increase in salaries n/a n/a Rate of increase of pensions in payment and deferred pension 1.9 2.0

The discount rate is based on the anticipated return of AA rated corporate bonds with a term matching the maturity of the scheme liabilities.

The Go-Ahead Group plc I www.go-ahead.com 149 Notes to the consolidated financial statements continued

27. Retirement benefit obligations continued The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the accounting assessments based on the life expectancy of a male member of each pension scheme at age 65. 2016 2015 Years Years Pensioner 21 20 Non-pensioner 22 21 Sensitivity analysis In making the valuation, the above assumptions have been used. For bus pension schemes, the following is an approximate sensitivity analysis of the impact of the change in the key assumptions. In isolation, the following adjustments would adjust the pension deficit as shown. 2016 2015 Pension deficit Pension deficit % % Discount rate – increase of 0.1% (1.7) (1.7) Price inflation – increase of 0.1% 1.5 1.5 Rate of increase in salaries – increase of 0.1% n/a n/a Rate of increase of pensions in payment – increase of 0.1% 0.9 0.9 Increase in life expectancy of pensioners or non-pensioners by 1 year 3.6 3.6

The sensitivity analysis presented above has been calculated using approximate methods. The use of 0.1% and 1 year in the sensitivity analysis is considered to be a reasonable illustrative approximation of possible changes, as these variations can regularly arise. Maturity profile of bus schemes defined benefit obligation The following tables shows the expected future benefit payments of the plan at 2 July 2016. 2016 £m June 2017 22.5 June 2018 23.0 June 2019 23.5 June 2020 24.1 June 2021 24.6 June 2022 to June 2026 131.5 Category of assets at the year end 2016 2015 £m % £m % Equities 275.1 36.0 254.3 38.6 Bonds 16.5 2.2 15.9 2.4 Property 69.6 9.1 61.4 9.3 Liability driven investing portfolio 392.2 51.4 306.1 46.4 Cash/other 9.7 1.3 21.5 3.3 763.1 100.0 659.2 100.0

150 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

27. Retirement benefit obligations continued Pension cost for the financial year The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the 2016 2015 accounting assessments based on the life expectancy of a male member of each pension scheme at age 65. £m £m 2016 2015 Service cost 0.1 – Years Years Administration costs 1.8 2.2 Pensioner 21 20 Settlement (gain)/ loss (0.5) 0.5 Non-pensioner 22 21 Interest cost on net liabilities 2.1 2.4 Total pension costs 3.5 5.1 Sensitivity analysis In making the valuation, the above assumptions have been used. For bus pension schemes, the following is an approximate sensitivity analysis of the The £0.5m settlement gain represents gains made by the pension scheme in respect of the pension increase exchange exercise undertaken in the year. impact of the change in the key assumptions. In isolation, the following adjustments would adjust the pension deficit as shown. report Strategic Analysis of the change in the pension scheme liabilities over the financial year 2016 2015 2016 2015 Pension deficit Pension deficit £m £m % % Pension scheme liabilities – at start of year 718.7 663.3 Discount rate – increase of 0.1% (1.7) (1.7) Service cost 0.1 – Price inflation – increase of 0.1% 1.5 1.5 Interest cost 26.4 27.2 Rate of increase in salaries – increase of 0.1% n/a n/a Settlement gain (0.5) – Rate of increase of pensions in payment – increase of 0.1% 0.9 0.9 Remeasurement (gains)/losses due to: Increase in life expectancy of pensioners or non-pensioners by 1 year 3.6 3.6 Experience on benefit obligations (68.8) (21.9) The sensitivity analysis presented above has been calculated using approximate methods. The use of 0.1% and 1 year in the sensitivity analysis is Changes in demographic assumptions 10.6 – Governance considered to be a reasonable illustrative approximation of possible changes, as these variations can regularly arise. Changes in financial assumptions 102.1 93.5 Maturity profile of bus schemes defined benefit obligation Transfer payments – (17.9) The following tables shows the expected future benefit payments of the plan at 2 July 2016. Benefits paid (22.8) (25.5) 2016 Pension scheme liabilities – at end of year 765.8 718.7 £m Analysis of the change in the pension scheme assets over the financial year June 2017 22.5 2016 2015

June 2018 23.0 £m £m Financial statements June 2019 23.5 Fair value of assets – at start of year 659.2 603.5 June 2020 24.1 Interest income of plan assets 24.3 24.8 June 2021 24.6 Remeasurement gains due to return on assets greater than discount rate 99.4 72.3 June 2022 to June 2026 131.5 Administration costs (1.8) (2.2) Group contributions 4.8 4.7 Category of assets at the year end 2016 2015 Transfer payments – (18.4) £m % £m % Benefits paid (22.8) (25.5) Equities 275.1 36.0 254.3 38.6 Fair value of plan assets – at end of year 763.1 659.2 Shareholder information Bonds 16.5 2.2 15.9 2.4 Estimated contributions for future Property 69.6 9.1 61.4 9.3 £m Liability driven investing portfolio 392.2 51.4 306.1 46.4 Estimated Group contributions in financial year 2017 6.5 Cash/other 9.7 1.3 21.5 3.3 Estimated employee contributions in financial year 2017 – 763.1 100.0 659.2 100.0 Estimated total contributions in financial year 2017 6.5

All of the asset categories above are held within pooled funds and are therefore quoted in active markets. Rail schemes Funding position of the Group’s pension arrangements The Railways Pension Scheme (RPS) 2016 2015 £m £m The majority of employees in our train operating companies are members of sections of the RPS, a funded defined benefit scheme. The RPS is a shared Employer’s share of pension scheme: costs scheme, with assets and liabilities split 60%/40% between the franchise holder/employee respectively. The RPS sections are all open to new entrants and the assets and liabilities of each company’s section are separately identifiable and segregated for funding purposes. Liabilities at the end of the year (765.8) (718.7) Assets at fair value 763.1 659.2 Changes in financial assumptions includes the effect of changes in the salary cap agreed to offset additional National Insurance costs as a result of the schemes no longer “opting out”. Pension scheme liability (2.7) (59.5) British Railways Additional Superannuation Scheme (BRASS) matching AVC Group contributions of £0.7m (2015: £0.8m) were paid in the year. It is our experience that all pension obligations to the RPS cease on expiry of the franchises without cash or other settlement, and therefore the obligations recognised on the balance sheet under IAS 19 (revised) are only those that are expected to be funded during the franchise term. However, in spite of our past experience and that of other train operating companies proving otherwise, our legal obligations are not restricted. On entering into a franchise, the operator becomes the designated employer for the term of the contract and under the RPS rules is obliged to meet the schedule of contributions agreed with the scheme trustees and actuaries, in respect of which no funding cap is set out in the franchise contract. The RPS is governed by the Railways Pension Trustee Company Limited and is subject to regulation from the Pensions Regulator and relevant UK legislation. IAS 19 (revised) would require the Group to account for its legal obligation under the formal terms of the RPS and its contractual obligation under the terms of each franchise agreement. Following industry practice, the Group has concluded that the appropriate accounting policy for the RPS to ensure that the financial statements present fairly the Group’s financial position, financial performance and cashflows, is to recognise its contractual but not its legal RPS defined benefit obligations. In all other respects the Group’s accounting policy is consistent with IAS 19 (revised) and the treatment adopted for non-rail defined benefit schemes. In doing so, the Group has applied the provisions of paragraph 17 of IAS 1 and departed from the requirements of IAS 19 (revised) in order to achieve a fair presentation of the Group’s obligations regarding its rail schemes and prevent gains arising on transfer of the existing RPS deficits to a new franchise owner at exit.

The Go-Ahead Group plc I www.go-ahead.com 151 Notes to the consolidated financial statements continued

27. Retirement benefit obligations continued The total surplus or deficit recorded is adjusted by way of a ‘franchise adjustment’, which includes an assessment of surpluses or deficits that could arise from future contributions, and is that portion of the deficit or surplus projected to exist at the end of the franchise which the Group will not be required to fund or benefit from. Summary of year end assumptions 2016 2015 % % Retail price index inflation 2.9 3.3 Consumer price index inflation 1.9 2.3 Discount rate 2.8 3.8 Rate of increase in salaries 3.1 4.3 Rate of increase of pensions in payment and deferred pension 1.9 2.3

The discount rate is based on the anticipated return of AA rated corporate bonds with a term matching the maturity of the scheme liabilities. The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the accounting assessments based on the life expectancy of a male member of each pension scheme at age 65. 2016 2015 Years Years Pensioner 22 22 Non-pensioner 24 24

The mortality assumptions adopted as at 2 July 2016 and 27 June 2015 are based on the results of the latest funding valuation as at 31 December 2013. Sensitivity analysis Due to the natue of the franchise adjustment, the balance sheet position in respect of the rail pension schemes is not sensitive to small movements in any of the assumptions and therefore we have not included any quantitative sensitivity analysis. Category of assets at the year end 2016 2015 £m % £m % Equities 1,907.6 96.5 1,663.6 95.5 Property 67.2 3.4 71.4 4.1 Cash 2.0 0.1 7.0 0.4 1,976.8 100.0 1,742.0 100.0

All of the asset categories above are held within pooled funds and therefore quoted in active markets. Funding position of the Group’s pension arrangements 2016 2015 £m £m Employer’s 60% share of pension scheme: Liabilities at the end of the year (2,625.8) (2,290.4) Assets at fair value 1,976.8 1,742.0 Gross deficit (649.0) (548.4) Franchise adjustment 649.0 548.4 Pension scheme liability – –

152 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

27. Retirement benefit obligations continued Pension cost for the financial year The total surplus or deficit recorded is adjusted by way of a ‘franchise adjustment’, which includes an assessment of surpluses or deficits that could arise 2016 2015 from future contributions, and is that portion of the deficit or surplus projected to exist at the end of the franchise which the Group will not be required £m £m to fund or benefit from. Service cost 85.5 63.2 Administration costs 3.9 3.0 Summary of year end assumptions Interest cost on net liabilities 21.2 16.9 2016 2015 % % Interest on franchise adjustments (21.2) (16.9) Retail price index inflation 2.9 3.3 Pension cost 89.4 66.2 Consumer price index inflation 1.9 2.3 Analysis of the change in the employer’s 60% share of pension scheme liabilities over the financial year Discount rate 2.8 3.8 2016 2015 report Strategic Rate of increase in salaries 3.1 4.3 £m £m Rate of increase of pensions in payment and deferred pension 1.9 2.3 Pension scheme liabilities less members share (40%) of the deficit – at start of year 2,290.4 1,601.6 Franchise adjustment (100%) (548.4) (337.3) The discount rate is based on the anticipated return of AA rated corporate bonds with a term matching the maturity of the scheme liabilities. 1,742.0 1,264.3 The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the Liability movement for members’ share of assets (40%) 119.9 94.1 accounting assessments based on the life expectancy of a male member of each pension scheme at age 65. Service cost (60%) 85.5 63.2 2016 2015 Interest cost (60%) 60.6 55.2 Years Years Interest on franchise adjustment (100%) (21.2) (16.9) Pensioner 22 22 Remeasurement losses/(gains) due to: Governance Non-pensioner 24 24 Experience on benefit obligations (60%) 0.4 (32.9) The mortality assumptions adopted as at 2 July 2016 and 27 June 2015 are based on the results of the latest funding valuation as at 31 December 2013. Changes in financial assumptions (60%) 184.0 206.1 Salary cap introduction (60%) (48.1) – Sensitivity analysis Due to the natue of the franchise adjustment, the balance sheet position in respect of the rail pension schemes is not sensitive to small movements in Benefits paid (100%) (66.9) (51.7) any of the assumptions and therefore we have not included any quantitative sensitivity analysis. GTR franchise award – employers’ share of pension scheme liabilities (60%) – 354.8 GTR franchise award – franchise adjustment (100%) – (63.0) Category of assets at the year end Franchise adjustment movement (100%) (79.4) (131.2) 2016 2015 Financial statements £m % £m % 1,976.8 1,742.0 Equities 1,907.6 96.5 1,663.6 95.5 Franchise adjustment (100%) 649.0 548.4 Property 67.2 3.4 71.4 4.1 Pension scheme liabilities less members share (40%) of the deficit – at end of year 2,625.8 2,290.4 Cash 2.0 0.1 7.0 0.4 Analysis of the change in the pension scheme assets over the financial year 1,976.8 100.0 1,742.0 100.0 2016 2015 £m £m All of the asset categories above are held within pooled funds and therefore quoted in active markets. Fair value of assets – at start of year (100%) 1,742.0 1,264.3

Funding position of the Group’s pension arrangements Interest income of plan assets (60%) 39.3 38.3 Shareholder information 2016 2015 Remeasurement gains due to return on assets greater than discount rate (60%) 102.2 65.8 £m £m Administration costs (100%) (6.6) (5.0) Employer’s 60% share of pension scheme: Group contributions (100%) 43.5 41.5 Liabilities at the end of the year (2,625.8) (2,290.4) Benefits paid (100%) (66.9) (51.7) Assets at fair value 1,976.8 1,742.0 GTR franchise award (100%) – 291.8 Gross deficit (649.0) (548.4) Members’ share of movement of assets (40%) 123.3 97.0 Franchise adjustment 649.0 548.4 Fair value of plan assets – at end of year (100%) 1,976.8 1,742.0 Pension scheme liability – – Estimated contributions for future £m Estimated Group contributions in financial year 2017 37.4 Estimated employee contributions in financial year 2017 24.2 Estimated total contributions in financial year 2017 61.6

The Go-Ahead Group plc I www.go-ahead.com 153 Notes to the consolidated financial statements continued

27. Retirement benefit obligations continued If the Group had accounted for the rail schemes in accordance with the full provisions of IAS 19 (revised) the following adjustments would have been made to the financial statements: 2016 2015 £m £m Balance sheet Defined benefit pension plan (649.0) (548.4) Deferred tax asset 116.8 109.7 (532.2) (438.7) Other comprehensive income Remeasurement gains 79.4 131.2 Tax on remeasurement gains (14.3) (26.2) 65.1 105.0 Income statement Operating costs – franchise adjustment (21.2) (16.9) Deferred tax charge 3.8 3.4 (17.4) (13.5)

Risks associated with defined benefit plans Rail schemes Despite remaining open to new entrants and future accrual, the risks posed by the RPS are limited, as under the franchise arrangements, the train operating companies are not responsible for any residual deficit at the end of a franchise. As such, there is only short term cashflow risk within this business. Bus schemes The number of employees in defined benefit plans is reducing, as these plans are closed to new entrants, and in the case of The Go-Ahead Group Pension Plan, closed to future accrual. The key risks relating to the defined benefit pension arrangements and the steps taken by the Group to mitigate them are as follows: Risk Description Mitigation Asset volatility The liabilities are calculated using a discount rate set with Asset liability modelling has been undertaken recently in reference to bond yields with maturity profiles matching pension all significant plans to ensure that any risks taken are rewarded maturity; if assets underperform this yield, this will create a deficit. and that we have a balance of risk seeking and liability driven Most of the defined benefit arrangements hold a proportion investments. of return-seeking assets (equities, diversified growth funds and global absolute return funds), and to offset the additional risk, hold a proportion in liability driven investments, which should reduce volatility. Inflation risk A significant proportion of the UK benefit obligations are linked The business has some inflation linking in its revenue streams, to inflation, and higher inflation will lead to higher liabilities. which helps to offset this risk. Life expectancy The majority of the Scheme’s obligations are to provide benefits The Group final salary scheme has closed to future accrual for the life of the member, so increases in life expectancy will reducing exposure to increases in life expectancy risk. result in an increase in the liabilities. Legislative risk Future legislative changes are uncertain. In the past these have The Group final salary scheme has closed to future accrual, led to increases in obligations, introducing pension increases, reducing risk to legislative change. The Group takes professional and vesting of deferred pensions, or reduced investment advice to keep abreast of legislative changes. return through the ability to reclaim Advance Corporation Tax. The UK government has legislated to end contracting out in 2016. Further legislation could result in an increase in the value of Guaranteed Minimum Pension. If this legislation is implemented, this would increase the defined benefit obligation of the arrangements.

154 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

27. Retirement benefit obligations continued 28. Related party disclosures and Group undertakings If the Group had accounted for the rail schemes in accordance with the full provisions of IAS 19 (revised) the following adjustments would have been Our subsidiaries listed below each contributes to the profits, assets and cashflow of the Group. The Group has a number of related parties including made to the financial statements: joint ventures, pension schemes and directors. For accounting policies see ‘Interests in joint arrangements’ in note 2. 2016 2015 The consolidated financial statements include the financial statements of The Go-Ahead Group plc and the following Group undertakings: £m £m % equity interest Balance sheet Name Country of incorporation 2016 2015 Defined benefit pension plan (649.0) (548.4) Trading subsidiaries Deferred tax asset 116.8 109.7 Go-Ahead Holding Limited United Kingdom2 100 100 (532.2) (438.7) Go North East Limited United Kingdom 100 100 Other comprehensive income Go Northern Limited United Kingdom 100 100 report Strategic Remeasurement gains 79.4 131.2 London General Transport Services Limited United Kingdom 100 100 Tax on remeasurement gains (14.3) (26.2) London Central Bus Company Limited United Kingdom 100 100 65.1 105.0 Go-Ahead London Rail Replacement Services Limited United Kingdom 100 100 Income statement Metrobus Limited United Kingdom 100 100 Operating costs – franchise adjustment (21.2) (16.9) Brighton & Hove Bus and Coach Company Limited United Kingdom 100 100 Deferred tax charge 3.8 3.4 The City of Oxford Motor Services Limited United Kingdom 100 100 (17.4) (13.5) Go South Coast Limited United Kingdom 100 100 Hants & Dorset Transport Support Services Limited United Kingdom 100 100 Risks associated with defined benefit plans Plymouth Citybus Limited United Kingdom 100 100 Governance Konectbus Limited United Kingdom 100 100 Rail schemes Despite remaining open to new entrants and future accrual, the risks posed by the RPS are limited, as under the franchise arrangements, the train Thames Travel (Wallingford) Limited United Kingdom 100 100 operating companies are not responsible for any residual deficit at the end of a franchise. As such, there is only short term cashflow risk within Carousel Buses Limited United Kingdom 100 100 this business. Hedingham and District Omnibuses Limited United Kingdom 100 100 Anglian Bus Limited United Kingdom 100 100 Bus schemes HC Chambers and Son Limited United Kingdom 100 100 The number of employees in defined benefit plans is reducing, as these plans are closed to new entrants, and in the case of The Go-Ahead Group Pension Plan, closed to future accrual. Aviance UK Limited United Kingdom 100 100 Financial statements New Southern Railway Limited United Kingdom1 65 65 The key risks relating to the defined benefit pension arrangements and the steps taken by the Group to mitigate them are as follows: London and South Eastern Railway Limited United Kingdom1 65 65 Risk Description Mitigation London and Birmingham Railway Limited United Kingdom1 65 65 Asset volatility The liabilities are calculated using a discount rate set with Asset liability modelling has been undertaken recently in Southern Railway Limited United Kingdom1 65 65 reference to bond yields with maturity profiles matching pension all significant plans to ensure that any risks taken are rewarded Govia Thameslink Railway Limited United Kingdom1 65 65 maturity; if assets underperform this yield, this will create a deficit. and that we have a balance of risk seeking and liability driven 1 Most of the defined benefit arrangements hold a proportion investments. Thameslink Rail Limited United Kingdom 65 65 1 of return-seeking assets (equities, diversified growth funds and Govia Limited United Kingdom 65 65 global absolute return funds), and to offset the additional risk, Go-Ahead Scotland Limited United Kingdom 100 100 Shareholder information hold a proportion in liability driven investments, which should Go-Ahead Holding LLC United States of America – 100 reduce volatility. Go-Ahead Verkehrsgesellschaft Deutschland GmbH Germany 100 100 Inflation risk A significant proportion of the UK benefit obligations are linked The business has some inflation linking in its revenue streams, Go-Ahead Holding (Singapore) PTE Ltd Singapore 100 – to inflation, and higher inflation will lead to higher liabilities. which helps to offset this risk. Go-Ahead Loyang PTE Ltd Singapore 100 – Life expectancy The majority of the Scheme’s obligations are to provide benefits The Group final salary scheme has closed to future accrual Jointly controlled entities for the life of the member, so increases in life expectancy will reducing exposure to increases in life expectancy risk. On Track Retail Limited United Kingdom3 50 50 result in an increase in the liabilities. 1. The rail companies are 65% owned by The Go-Ahead Group plc and 35% owned by Keolis (UK) Limited and held through Govia Limited. Legislative risk Future legislative changes are uncertain. In the past these have The Group final salary scheme has closed to future accrual, 2. Held by The Go-Ahead Group plc. All other companies are held through subsidiary undertakings. led to increases in obligations, introducing pension increases, reducing risk to legislative change. The Group takes professional 3. On Track Retail Limited is a start up company and was immaterial to the Group’s financial statements. and vesting of deferred pensions, or reduced investment advice to keep abreast of legislative changes. return through the ability to reclaim Advance Corporation The above trading subsidiaries have one class of ordinary shares which carry no right to fixed income. With the exception of On Track Retail Limited, Tax. The UK government has legislated to end contracting out which also have redeemable preference shares. in 2016. Further legislation could result in an increase in the The registered office of all trading subsidiaries incorporated in the United Kingdom is: 3rd Floor, 41-51 Grey Street, Newcastle upon Tyne, NE1 6EE. value of Guaranteed Minimum Pension. If this legislation is The registered office of Go-Ahead Verkehrsgesellschaft Deutschland GmbH incorporated in Germany is: Platz vor dem Neuen Tor 2, D- 10115, implemented, this would increase the defined benefit obligation Berlin, Germany. of the arrangements. The registered office of trading subsidiaries incorporated in Singapore is: 2 Loyang Way, Singapore 508776.

The Go-Ahead Group plc I www.go-ahead.com 155 Notes to the consolidated financial statements continued

28. Related party disclosures and Group undertakings continued % equity interest Name Company number Country of incorporation 2016 2015 Dormant subsidiaries Eastern Railway Limited 7164882 United Kingdom 100 100 Go Wear Buses Limited 2019645 United Kingdom 100 100 Go-Reading Limited 3158846 United Kingdom 100 100 South Central Limited 4173713 United Kingdom 100 100 The Go-Ahead Group Trustee Co Limited 2125799 United Kingdom 100 100 Go-Ahead Property Development Limited 7128594 United Kingdom 100 100 Go-Ahead XX Limited 8205871 United Kingdom 100 100 GHI Limited 4262016 United Kingdom 100 100 Southern Vectis Limited 2005917 United Kingdom 100 100 Birmingham Passenger Transport Services Limited 2901263 United Kingdom 100 100 Go Coastline Limited 2018469 United Kingdom 100 100 Go London Limited 2849983 United Kingdom 100 100 Go West Midlands Limited 2490584 United Kingdom 100 100 Levers Coaches Limited 2524573 United Kingdom 100 100 MetroCity (Newcastle) Limited 4153866 United Kingdom 100 100 Thames Trains Limited 3007943 United Kingdom 100 100 Victory Railway Holdings Limited 3147927 United Kingdom 100 100 Govia Northern Limited 6537238 United Kingdom1 65 65 London & East Midlands Railway Limited 5814586 United Kingdom1 65 65 London and West Midlands Railway Limited (previously North London Orbital Railway Limited) 5537947 United Kingdom1 65 65 Abingdon Bus Company Limited 3151270 United Kingdom 100 100 Reed Investments Limited 4236536 United Kingdom 100 100 Gatwick Handling Limited 2984113 United Kingdom 100 100 GH Heathrow Limited 2813292 United Kingdom 100 100 GH Manchester Limited 1883900 United Kingdom 100 100 GH Stansted Limited 1983429 United Kingdom 100 100 Midland Airport Services Limited 1592083 United Kingdom 100 100 Oxford Newco Limited 9542008 United Kingdom 100 100 London General Trustee Company Limited 6953098 United Kingdom 100 100 Go-Ahead Finance Company 4699524 United Kingdom 100 100 Hants & Dorset Motor Services Limited 2752603 United Kingdom 100 100 Hants & Dorset Trim Limited 2017829 United Kingdom 100 100 Solent Blue Line Limited 2103030 United Kingdom 100 100 Marchwood Motorways (Services) Limited 2201331 United Kingdom 100 100 Marchwood Motorways (Southampton) Limited 1622531 United Kingdom 100 100 The Southern Vectis Omnibus Co. Limited 0241973 United Kingdom 100 100 Tourist Coaches Limited 3006529 United Kingdom 100 100 Wilts & Dorset Bus Company Limited 1671355 United Kingdom 100 100 Wilts & Dorset Investments Limited 4613075 United Kingdom 100 100 Wilts & Dorset Holdings Limited 2091878 United Kingdom 100 100 Dockland Buses Limited 3420004 United Kingdom 100 100 Blue Triangle Buses Limited 3770568 United Kingdom 100 100 Go-Ahead Leasing Limited 5262810 United Kingdom 100 100 Go-Ahead Sverige AB Sweden 100 – Go-Ahead Norge AS Norway 100 – 1. The rail companies are 65% owned by The Go-Ahead Group plc and 35% owned by Keolis (UK) Limited and held through Govia Limited. The registered office of all dormant subsidiaries incorporated in the United Kingdom is: 3rd Floor, 41-51 Grey Street, Newcastle upon Tyne, NE1 6EE. The registered office of Go-Ahead Sverige AB incorporated in Sweden is: Mäster Samuelsgatan 20, SE 101 39, Stockholm, Sweden. The registered office of Go-Ahead Norge AS incorporated in Norway is: Filipstad Brygge 1, NO 0125, Oslo, Norway. All dormant companies listed above incorporated in the United Kingdom have taken advantage of the UK Companies Act 2006, S480 exemption from audit.

156 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued

28. Related party disclosures and Group undertakings continued Transactions with other related parties % equity interest The Group meets certain costs of administering the Group’s retirement benefit plans, including the provision of meeting space and office support Name Company number Country of incorporation 2016 2015 functions to the trustees. Costs borne on behalf of the retirement benefit plans amounted to £0.2m (2015: £0.2m). Dormant subsidiaries Joint operations Eastern Railway Limited 7164882 United Kingdom 100 100 The Group’s joint operations, On Track Retail Limited ‘OTR’ have their principal place of business in the United Kingdom. The principal activity of OTR Go Wear Buses Limited 2019645 United Kingdom 100 100 is the development and provision of web ticketing applications for the rail industry. The activities of the joint operation are strategically important to the Go-Reading Limited 3158846 United Kingdom 100 100 business activities of the Group. The Group owns 50% of the ordinary share capital of OTR. South Central Limited 4173713 United Kingdom 100 100 Compensation of key management personnel of the Group The Go-Ahead Group Trustee Co Limited 2125799 United Kingdom 100 100 The key management are considered to be the directors of the parent company. Go-Ahead Property Development Limited 7128594 United Kingdom 100 100 report Strategic 2016 2015 Go-Ahead XX Limited 8205871 United Kingdom 100 100 £m £m GHI Limited 4262016 United Kingdom 100 100 Short term employee benefits 1.3 1.9 Southern Vectis Limited 2005917 United Kingdom 100 100 Long term employee benefits1 1.0 2.3 Birmingham Passenger Transport Services Limited 2901263 United Kingdom 100 100 Post employment benefits – 0.1 Go Coastline Limited 2018469 United Kingdom 100 100 2.3 4.3 Go London Limited 2849983 United Kingdom 100 100 1. The long term employee benefits relate to LTIP and DSBP. Go West Midlands Limited 2490584 United Kingdom 100 100 Levers Coaches Limited 2524573 United Kingdom 100 100 Material partly owned subsidiaries

MetroCity (Newcastle) Limited 4153866 United Kingdom 100 100 Financial information of subsidiaries that have material non-controlling interests is provided below: Governance Thames Trains Limited 3007943 United Kingdom 100 100 Proportion of equity interest held by non-controlling interests: Victory Railway Holdings Limited 3147927 United Kingdom 100 100 Country of incorporation Govia Northern Limited 6537238 United Kingdom1 65 65 and operation 2016 2015 London & East Midlands Railway Limited 5814586 United Kingdom1 65 65 Govia Limited United Kingdom 35% 35% London and West Midlands Railway Limited London and South Eastern Railway Limited1 United Kingdom 35% 35% (previously North London Orbital Railway Limited) 5537947 United Kingdom1 65 65 Southern Railway Limited1 United Kingdom 35% 35% Abingdon Bus Company Limited 3151270 United Kingdom 100 100 London and Birmingham Railway Limited1 United Kingdom 35% 35% Financial statements Reed Investments Limited 4236536 United Kingdom 100 100 Govia Thameslink Railway Limited1 United Kingdom 35% 35% Gatwick Handling Limited 2984113 United Kingdom 100 100 Thameslink Rail Limited1 United Kingdom 35% 35% GH Heathrow Limited 2813292 United Kingdom 100 100 New Southern Railway Limited1 United Kingdom 35% 35% GH Manchester Limited 1883900 United Kingdom 100 100 1. Subsidiary of Govia Limited. GH Stansted Limited 1983429 United Kingdom 100 100 2016 2015 Midland Airport Services Limited 1592083 United Kingdom 100 100 £m £m Oxford Newco Limited 9542008 United Kingdom 100 100 Accumulated balances of material non-controlling interest: London General Trustee Company Limited 6953098 United Kingdom 100 100 Govia Limited 22.6 15.8 Shareholder information Go-Ahead Finance Company 4699524 United Kingdom 100 100 Total comprehensive income allocated to material non-controlling interest: Hants & Dorset Motor Services Limited 2752603 United Kingdom 100 100 Govia Limited 24.4 13.8 Hants & Dorset Trim Limited 2017829 United Kingdom 100 100 Solent Blue Line Limited 2103030 United Kingdom 100 100 Marchwood Motorways (Services) Limited 2201331 United Kingdom 100 100 Marchwood Motorways (Southampton) Limited 1622531 United Kingdom 100 100 The Southern Vectis Omnibus Co. Limited 0241973 United Kingdom 100 100 Tourist Coaches Limited 3006529 United Kingdom 100 100 Wilts & Dorset Bus Company Limited 1671355 United Kingdom 100 100 Wilts & Dorset Investments Limited 4613075 United Kingdom 100 100 Wilts & Dorset Holdings Limited 2091878 United Kingdom 100 100 Dockland Buses Limited 3420004 United Kingdom 100 100 Blue Triangle Buses Limited 3770568 United Kingdom 100 100 Go-Ahead Leasing Limited 5262810 United Kingdom 100 100 Go-Ahead Sverige AB Sweden 100 – Go-Ahead Norge AS Norway 100 – 1. The rail companies are 65% owned by The Go-Ahead Group plc and 35% owned by Keolis (UK) Limited and held through Govia Limited. The registered office of all dormant subsidiaries incorporated in the United Kingdom is: 3rd Floor, 41-51 Grey Street, Newcastle upon Tyne, NE1 6EE. The registered office of Go-Ahead Sverige AB incorporated in Sweden is: Mäster Samuelsgatan 20, SE 101 39, Stockholm, Sweden. The registered office of Go-Ahead Norge AS incorporated in Norway is: Filipstad Brygge 1, NO 0125, Oslo, Norway. All dormant companies listed above incorporated in the United Kingdom have taken advantage of the UK Companies Act 2006, S480 exemption from audit.

The Go-Ahead Group plc I www.go-ahead.com 157 Notes to the consolidated financial statements continued

28. Related party disclosures and Group undertakings continued The summarised financial information of these subsidiaries is provided below. The information is based on amounts before inter-company eliminations: Summarised income statement of Govia Limited and its subsidiary companies for the year ended 2 July 2016 and 27 June 2015: 2016 2015 £m £m Revenue 2,498.0 2,397.4 Operating costs (excluding amortisation and exceptional operating costs) (2,455.3) (2,355.1) Intangible asset amortisation (0.6) (0.8) Exceptional operating costs – (8.8) Finance revenue 3.2 2.3 Finance costs (2.9) (2.9) Profit on ordinary activities before taxation 42.4 32.1 Tax expense (9.3) (11.8) Profit for the year from controlling operations 33.1 20.3 Total comprehensive income 69.8 39.4 Attributable to non-controlling interests 24.4 13.8 Dividends paid to non-controlling interests 17.8 12.8 Summarised balance sheet of Govia Limited and its subsidiary companies as at 2 July 2016 and 27 June 2015: 2016 2015 £m £m Current assets – inventories, trade and other receivables, cash 924.5 843.7 Non-current assets – property, plant and equipment, intangible assets, deferred tax 35.4 25.0 Current liabilities – trade and other payables, provisions (849.7) (815.7) Non-current liabilities – provisions (45.6) (8.0) Total equity 64.6 45.0 Attributable to: Equity holders of the parent 42.0 29.2 Non-controlling interest 22.6 15.8

These balance sheet amounts are shown before intercompany eliminations. Summarised cashflow information of Govia Limited and its subsidiary companies for the year ended 2 July 2016 and 27 June 2015: 2016 2015 £m £m Operating 62.7 324.9 Investing 20.8 45.5 Financing (53.7) (39.3) Net increase in cash and cash equivalents 29.8 331.1

158 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the consolidated financial statements continued Company statement of comprehensive income for the year ended 2 July 2016

28. Related party disclosures and Group undertakings continued 2016 2015 £m £m The summarised financial information of these subsidiaries is provided below. The information is based on amounts before inter-company eliminations: Profit for the year 23.4 72.4 Summarised income statement of Govia Limited and its subsidiary companies for the year ended 2 July 2016 and 27 June 2015: 2016 2015 Other comprehensive income: £m £m Items that will not be reclassified to profit or loss Revenue 2,498.0 2,397.4 Remeasurement gains on defined benefit pension plans 56.7 0.7 Operating costs (excluding amortisation and exceptional operating costs) (2,455.3) (2,355.1) Tax relating to items that will not be reclassified (11.3) (0.1) Intangible asset amortisation (0.6) (0.8) 45.4 0.6

Exceptional operating costs – (8.8) report Strategic Finance revenue 3.2 2.3 Other comprehensive income for the year, net of tax 45.4 0.6 Finance costs (2.9) (2.9) Profit on ordinary activities before taxation 42.4 32.1 Total comprehensive income for the year 68.8 73.0 Tax expense (9.3) (11.8) Profit for the year from controlling operations 33.1 20.3

Total comprehensive income 69.8 39.4 Attributable to non-controlling interests 24.4 13.8 Dividends paid to non-controlling interests 17.8 12.8 Governance Summarised balance sheet of Govia Limited and its subsidiary companies as at 2 July 2016 and 27 June 2015: 2016 2015 £m £m Current assets – inventories, trade and other receivables, cash 924.5 843.7 Non-current assets – property, plant and equipment, intangible assets, deferred tax 35.4 25.0 Current liabilities – trade and other payables, provisions (849.7) (815.7) Non-current liabilities – provisions (45.6) (8.0)

Total equity 64.6 45.0 Financial statements Attributable to: Equity holders of the parent 42.0 29.2 Non-controlling interest 22.6 15.8

These balance sheet amounts are shown before intercompany eliminations. Summarised cashflow information of Govia Limited and its subsidiary companies for the year ended 2 July 2016 and 27 June 2015: 2016 2015 £m £m Operating 62.7 324.9 Shareholder information Investing 20.8 45.5 Financing (53.7) (39.3) Net increase in cash and cash equivalents 29.8 331.1

The Go-Ahead Group plc I www.go-ahead.com 159 Company statement of changes in equity for the year ended 2 July 2016

Share Capital Share Share Revaluation premium redemption Reserve for Retained Total capital premium reserve reserve reserve own shares earnings equity £m £m £m £m £m £m £m £m At 28 June 2014 4.7 67.4 82.0 1.6 0.7 (69.9) 447.3 533.8 Profit for the year – – – – – – 72.4 72.4 Remeasurement on defined benefit retirement plans (net of tax) – – – – – – 0.6 0.6 Total comprehensive income – – – – – – 73.0 73.0 Dividend income (note 2) – – – – – – (36.7) (36.7) Movement on revaluation reserve (note 13) – – (4.9) – – – 4.9 – Share based payment charge (and associated tax) – – – – – – 1.2 1.2 Reserves transfer – – – – – 1.1 (1.1) – At 27 June 2015 4.7 67.4 77.1 1.6 0.7 (68.8) 488.6 571.3 Profit for the year – – – – – – 23.4 23.4 Remeasurement on defined benefit retirement plans (net of tax) – – – – – – 45.4 45.4 Total comprehensive income – – – – – – 68.8 68.8 Dividend income (note 2) – – – – – – (39.4) (39.4) Movement on revaluation reserve (note 13) – – (3.2) – – – 3.2 – Acquisition of own shares – – – – – (4.4) – (4.4) Share based payment charge (and associated tax) – – – – – – 0.8 0.8 Reserves transfer – – – – – 2.3 (2.3) – At 2 July 2016 4.7 67.4 73.9 1.6 0.7 (70.9) 519.7 597.1

160 The Go-Ahead Group plc I Annual Report and Accounts 2016 Company statement of changes in equity Company balance sheet for the year ended 2 July 2016 as at 2 July 2016

Share Capital Registered No: 02100855 Share Share Revaluation premium redemption Reserve for Retained Total capital premium reserve reserve reserve own shares earnings equity 2015 £m £m £m £m £m £m £m £m (restated – 2016 see note 9) At 28 June 2014 4.7 67.4 82.0 1.6 0.7 (69.9) 447.3 533.8 Notes £m £m Profit for the year – – – – – – 72.4 72.4 Fixed assets Remeasurement on defined benefit retirement Intangible assets 3 1.5 1.8 plans (net of tax) – – – – – – 0.6 0.6 Tangible assets 4 172.7 162.9 Total comprehensive income – – – – – – 73.0 73.0 Investments 5 215.1 215.1 Dividend income (note 2) – – – – – – (36.7) (36.7) Financial assets 9 0.2 – Strategic report Strategic Movement on revaluation reserve (note 13) – – (4.9) – – – 4.9 – 389.5 379.8 Share based payment charge (and associated tax) – – – – – – 1.2 1.2 Current assets Reserves transfer – – – – – 1.1 (1.1) – Debtors: amounts falling due within one year 6 574.2 660.7 At 27 June 2015 4.7 67.4 77.1 1.6 0.7 (68.8) 488.6 571.3 Debtors: amounts falling due after more than one year 6 14.9 16.3 Profit for the year – – – – – – 23.4 23.4 Cash on deposit 0.4 1.2 Remeasurement on defined benefit retirement Financial assets 9 0.6 – plans (net of tax) – – – – – – 45.4 45.4 590.1 678.2 Total comprehensive income – – – – – – 68.8 68.8

Dividend income (note 2) – – – – – – (39.4) (39.4) Governance Creditors: amounts falling due within one year 7 (67.6) (115.1) Movement on revaluation reserve (note 13) – – (3.2) – – – 3.2 – Financial liabilities 9 (10.3) (19.1) Acquisition of own shares – – – – – (4.4) – (4.4)

Share based payment charge (and associated tax) – – – – – – 0.8 0.8 Net current assets 512.2 544.0 Reserves transfer – – – – – 2.3 (2.3) – At 2 July 2016 4.7 67.4 73.9 1.6 0.7 (70.9) 519.7 597.1 Total assets less current liabilities 901.7 923.8

Financial statements Creditors: amounts falling due after more than one year 7 (269.2) (269.4) Retirement benefit obligations 12 1.5 (56.7) Provisions 10 (32.8) (20.9) Financial liabilities 9 (4.1) (5.5)

Net assets 597.1 571.3

Capital and reserves Shareholder information Share capital 13 4.7 4.7 Share premium 67.4 67.4 Revaluation reserve 13 73.9 77.1 Share premium reserve 13 1.6 1.6 Capital redemption reserve 0.7 0.7 Reserve for own shares (70.9) (68.8) Retained earnings 519.7 488.6 Total equity 597.1 571.3

Patrick Butcher, Group Chief Financial Officer

8 September 2016

The Go-Ahead Group plc I www.go-ahead.com 161 Directors’ responsibilities in relation to the company financial statements

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable UK law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including FRS 101 “Reduced Disclosure Framework”. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable United Kingdom Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company, and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

162 The Go-Ahead Group plc I Annual Report and Accounts 2016 Directors’ responsibilities in relation to the company financial statements

The directors are responsible for preparing the annual report and the 1. Company accounting policies Critical accounting judgements and key sources financial statements in accordance with applicable UK law and regulations. Authorisation of financial statements and statement of compliance of estimation uncertainty Company law requires the directors to prepare financial statements for with FRS101 The preparation of the financial statements requires management to make each financial year. Under that law the directors have elected to prepare The Company financial statements of The Go-Ahead Group plc for the judgements, estimates and assumptions. Although these judgements and the financial statements in accordance with United Kingdom Generally year ended 2 July 2016 were authorised for issue by the Board of estimates are based on management’s best knowledge, actual results Accepted Accounting Practice (United Kingdom Accounting Standards directors on 8 September 2016 and the balance sheet was signed on the ultimately may differ from these estimates. and applicable law) including FRS 101 “Reduced Disclosure Framework”. Board’s behalf by Patrick Butcher. The Go-Ahead Group plc is a public The key sources of estimation uncertainty that have a significant risk of Under company law the directors must not approve the financial limited company that is incorporated, domiciled and has its registered causing material adjustments to the carrying value of assets and liabilities statements unless they are satisfied that they give a true and fair view of office in England and Wales. The Company’s ordinary shares are publicly within the next financial year are in relation to: the state of affairs of the Company and of the profit or loss of the traded on the London Stock Exchange and it is not under the control of report Strategic Company for that period. In preparing these financial statements, the any single shareholder. Retirement benefit obligations directors are required to: The measurement of defined benefit pension obligations requires the These financial statements were prepared in accordance with Financial estimation of future changes in salaries, inflation, longevity of current and • select suitable accounting policies and then apply them consistently; Reporting Standard 101 Reduced Disclosure Framework (FRS101) and in deferred members and the selection of a suitable discount rate, as set out line with the recognition and measurement criteria of IFRS. • make judgements and accounting estimates that are reasonable in note 12. The Company engages with Willis Towers Watson, a global and prudent; The financial statements have been prepared on a going concern basis as professional services company whose specialisms include actuarial advice, • state whether applicable United Kingdom Accounting Standards have disclosed in detail on page 106. to support the process of establishing reasonable bases for all of these been followed, subject to any material departures disclosed and No profit or loss account is presented by the Company as permitted by estimates, to ensure they are appropriate to our particular circumstances. explained in the financial statements; and Section 408 of the Companies Act 2006. Uninsured claims

• prepare the financial statements on the going concern basis unless it is Governance Basis of preparation The measurement of uninsured liabilities is based on an assessment of the inappropriate to presume that the Company will continue in business. The Company transitioned to FRS101from the UK Generally Accepted expected settlement of known claims and an estimate of the cost of The directors are responsible for keeping adequate accounting records Accounting Practice during the year ended 28 June 2014. The Company claims not yet reported to the Company, as detailed in note 10. In order that are sufficient to show and explain the Company’s transactions and adopted FRS101 early, which is permitted under the standard. to assess the appropriate level of provisions the Company engages with its disclose with reasonable accuracy at any time the financial position of the The accounting policies which follow set out those policies which apply brokers and claims handlers to ensure external expertise of our claims Company, and to enable them to ensure that the financial statements in preparing the financial statements for the year ended 2 July 2016. development history is adequately built in to the provision. comply with the Companies Act 2006. They are also responsible for The financial statements are prepared under the historical cost convention. Accounting policies safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The financial statements are prepared in pounds sterling and are rounded Revenue recognition Financial statements to the nearest one hundred thousand (£0.1m). Revenue is recognised to the extent that it is probable that the income The directors are responsible for the maintenance and integrity of will flow to the Company and the value can be reliably measured. the corporate and financial information included on the Company’s In these financial statements, the Company has applied the exemptions Revenue is measured at the fair value of the consideration received or website. Legislation in the United Kingdom governing the preparation available under FRS101 in respect of the following disclosures: receivable and comprises intercompany management charges and and dissemination of financial statements may differ from legislation • the requirements of paragraph 45(b) and 46-52 of IFRS2 Share property rental. in other jurisdictions. Based Payment; • the requirements of paragraphs 62, B64(b), B64(e), B64(g), B64(h), Tangible assets Property, plant and equipment is stated at cost or deemed cost on B64(j) to B64(m), b64(n)(ii), B64(o)(ii), B64(p), B64(Q)(ii), B66 and B67 of IFRS3 Business Combinations; transition to IFRSs less accumulated depreciation and any impairment in Shareholder information value. Freehold land is not depreciated. • the requirement of IFRS7 Financial Instruments: Disclosures; Assets held under finance leases are depreciated over the shorter of their • the requirement of paragraphs 91-99 of IFRS13 Fair Value expected useful lives and the lease terms. Measurement; Depreciation is charged to the income statement based on deemed cost • the requirement in paragraph 38 of IAS1 Presentation of Financial or valuation, less estimated residual value of each asset evenly over its Statements to present comparative information in respect of: expected useful life as follows: • paragraph 79(a)(iv) of IAS1; Leasehold land and buildings The life of the lease • paragraph 73(e) of IAS16 Property, Plant and Equipment; Freehold buildings Over 50 to 100 years • paragraph 118(e) of IAS38 Intangible Assets Plant and equipment Over 3 to 15 years • the requirements of paragraphs 10(d), 10(f), 16, 39(c), 40A, 40B, 40C, The carrying values of items of property, plant and equipment are 40D, 111 and 134-136 of IAS1 Presentation of Financial Statements; reviewed for impairment when events or changes in circumstances • the requirements of IAS7 Statement of Cashflows; indicate the carrying value may not be recoverable. If any such indication • the requirements of paragraphs 30 and 31 of IAS8 Accounting Policies, exists the assets are written down to their recoverable amount. Changes in Accounting Estimates and Errors; Investments • the requirements of paragraph 17 of IAS24 Related Party Disclosures; Fixed asset investments in subsidiaries and associates are shown at cost • the requirements in IAS24 Related Party Disclosures to disclose related less provision for impairment. party transactions entered into between two or more members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and • the requirements of paragraphs 134(d)-134(f) and 135(c)-135(e) of IAS36 Impairment of Assets.

The Go-Ahead Group plc I www.go-ahead.com 163 Notes to the Company financial statements

1. Company accounting policies continued Taxation Current tax assets and liabilities are measured at the amount expected to Pension benefits be recovered from or paid to the taxation authorities on an The cost of providing benefits under the defined benefit plan is undiscounted basis at the tax rates that are expected to apply when the determined using the projected unit credit method, which attributes related asset is realised or the liability is settled, based on tax rates and tax entitlement to benefits to the current period (to determine current laws that have been enacted or substantively enacted at the balance service cost) and to the current and prior periods (to determine the sheet date. present value of defined benefit obligation) and is based on actuarial advice. Net interest is calculated by applying the discount rate to the net Deferred tax is provided, using the liability method, on temporary defined benefit liability or asset. differences at the balance sheet date between the tax base of assets and liabilities for taxation purposes and their carrying amounts in the financial Remeasurements, comprising of actuarial gains and losses, the effect of statements. It is provided for on all temporary differences, except: the asset ceiling (excluding net interest) and the return on plan assets (excluding net interest) are recognised in the statement of comprehensive • in respect of taxable temporary differences associated with investments income in the period in which they occur. in subsidiaries where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary The current service cost is recognised in the income statement within differences will not reverse in the foreseeable future. operating costs. The net interest expense or income is recognised in the income statement within finance costs. Deferred tax assets are only recognised to the extent that it is probable Past service costs are recognised in the income statement on the earlier that the temporary differences will be reversed in the foreseeable future of the date of the plan amendment or curtailment, and the date that the and taxable profit will be available to allow all or part of the deferred Group recognises restructuring-related costs. When a settlement income tax asset to be utilised. The carrying amount of deferred tax assets (eliminating all obligations for benefits already accrued) or a curtailment is reviewed at each balance sheet date and reduced to the extent that it is (reducing future obligations as a result of a material reduction in the no longer probable that sufficient taxable profit will be available to allow scheme membership or a reduction in future entitlement) occurs, the all or part of the deferred income tax asset to be utilised. obligation and related plan assets are remeasured using current actuarial Tax relating to items recognised outside the income statement assumptions and the resultant gain or loss is recognised in the income is recognised in other comprehensive income or directly in equity in statement during the period in which the settlement or curtailment occurs. correlation with the underlying transaction. Otherwise, tax is recognised The defined benefit pension asset or liability in the balance sheet in the income statement. comprises the present value of the defined benefit obligation (using a Uninsured liabilities discount rate based on high quality corporate bonds), less the fair value of The Company limits its exposure to the cost of motor, employer and plan assets out of which obligations are to be settled directly for The Go- public liability claims through insurance policies issued by third parties. Ahead Group Pension Plan. Fair value is based on market price These provide individual claim cover, subject to high excess limits and an information and in the case of quoted securities is the published bid price. annual aggregate stop loss for total claims within the excess limits. A For the defined contribution schemes, the amount charged to the income provision is recognised for the estimated cost to the Company to settle statement in respect of pension costs and other post-retirement benefits claims for incidents occurring prior to the balance sheet date, subject to is the contributions payable in the year. Differences between contributions the overall stop loss. payable in the year and contributions actually paid are shown as either The estimation of this provision is made after taking appropriate accruals or prepayments in the balance sheet. professional advice and is based on an assessment of the expected Share based payments settlement on known claims, together with an estimate of settlements that The cost of options granted to employees is measured by reference to will be made in respect of incidents occurring prior to the balance sheet the fair value at the date at which they are granted, determined by an date but that have not yet been reported to the Company. external valuation using an appropriate pricing model. In granting equity- Treasury shares settled options, conditions are linked to some or all of the following: the Re-acquired shares in the Company, which remain uncancelled, are price of the shares of The Go-Ahead Group plc (market conditions); deducted from equity. Consideration paid and the associated costs are conditions not related to performances or service (non-vesting condition); also recognised in shareholders’ funds as a separate reserve for own performance conditions (a vesting condition); and service conditions shares. Any gain or loss on the purchase, sale, issue or cancellation of the (a vesting condition). Company’s shares is transferred from the reserve for own shares to The cost of options is recognised in the income statement over the period revenue reserves. from grant to vesting date, being the date on which the relevant Interest bearing loans and borrowings employees become fully entitled to the award, with a corresponding increase in equity. The cumulative expense recognised, at each reporting Debt is initially stated at the amount of the net proceeds, being the fair date, reflects the extent to which the period to vesting has expired and value of the consideration received after deduction of issue costs. the directors’ best estimate of the number of options that will ultimately Following initial recognition, the carrying amount is measured at amortised vest or, in the case of an instrument subject to a market or non-vesting cost using the effective interest method. Amortisation of liabilities and any condition, be treated as vesting as described above. This includes any gains and losses arising on the repurchase, settlement or other award where non-vesting conditions within the control of the Group or derecognition of debt are recognised directly in the income statement. the employee are not met. Assets held under finance leases, which are leases where substantially No cost is recognised for awards that do not ultimately vest, except for all of the risks and rewards of ownership of the asset have passed to the awards where vesting is conditional upon a market or non-vesting Company, are capitalised in the balance sheet, with a corresponding condition. These are treated as vesting irrespective of whether or not the liability being recognised, and are depreciated over the shorter of their market or non-vesting condition is satisfied, provided that all other useful lives and the lease terms. performance and/or service conditions are satisfied. Where an equity- The capital elements of future obligations under leases are included settled award is cancelled, it is treated as if it had vested on the date of as liabilities in the balance sheet. cancellation, and any cost not yet recognised for the award is recognised immediately.

164 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the Company financial statements

1. Company accounting policies continued Taxation The interest element of the rental obligations is charged to the income Changes in the fair value of financial instruments that are designated Current tax assets and liabilities are measured at the amount expected to statement over the periods of the leases and represents a constant and effective as hedges of future cashflows are recognised in other Pension benefits be recovered from or paid to the taxation authorities on an proportion of the balance of capital repayments outstanding. comprehensive income and the ineffective portion is recognised The cost of providing benefits under the defined benefit plan is undiscounted basis at the tax rates that are expected to apply when the immediately in the income statement. When the cashflow hedge results in determined using the projected unit credit method, which attributes Leases where a significant proportion of the risks and rewards of related asset is realised or the liability is settled, based on tax rates and tax the recognition of a non-financial asset or a liability, then at the time that entitlement to benefits to the current period (to determine current ownership are retained by the lessor are classified as operating leases. laws that have been enacted or substantively enacted at the balance asset or liability is recognised, the associated gains or losses on the service cost) and to the current and prior periods (to determine the Rentals payable under operating leases, and the amortisation of lease sheet date. derivative that had previously been recognised in other comprehensive present value of defined benefit obligation) and is based on actuarial incentives and initial direct costs in securing leases, are charged to the income are included in the initial measurement of that non-financial asset advice. Net interest is calculated by applying the discount rate to the net Deferred tax is provided, using the liability method, on temporary income statement on a straight-line basis over the lease term. or liability. For hedges that do not result in the recognition of an asset or a defined benefit liability or asset. differences at the balance sheet date between the tax base of assets and Provisions for liabilities liability, amounts deferred in equity are recognised in the income

liabilities for taxation purposes and their carrying amounts in the financial report Strategic Remeasurements, comprising of actuarial gains and losses, the effect of A provision is recognised when the Company has a legal or constructive statements. It is provided for on all temporary differences, except: statement in the period in which the hedged item affects net profit or loss. the asset ceiling (excluding net interest) and the return on plan assets obligation as a result of a past event; it is probable that an outflow of For derivatives that do not qualify for hedge accounting, any gains or (excluding net interest) are recognised in the statement of comprehensive • in respect of taxable temporary differences associated with investments economic benefit will be required to settle the obligation; and a reliable losses arising from changes in fair value are taken directly to the income income in the period in which they occur. in subsidiaries where the timing of the reversal of the temporary estimate can be made of the amount of the obligation. Where the effect differences can be controlled and it is probable that the temporary statement as they arise. The current service cost is recognised in the income statement within of the time value of money is material, provisions are discounted. Where differences will not reverse in the foreseeable future. Hedge accounting is discontinued when the derivative expires or is sold, operating costs. The net interest expense or income is recognised in the the Company expects some or all of a provision to be reimbursed, the terminated or exercised without replacement or rollover, or otherwise no income statement within finance costs. Deferred tax assets are only recognised to the extent that it is probable reimbursement is recognised as a separate asset but only when recovery is virtually certain. longer qualifies for hedge accounting. At that point in time, any cumulative Past service costs are recognised in the income statement on the earlier that the temporary differences will be reversed in the foreseeable future gain or loss on the hedging instrument recognised in other comprehensive of the date of the plan amendment or curtailment, and the date that the and taxable profit will be available to allow all or part of the deferred Financial instruments income is kept in equity until the forecast transaction occurs, at which income tax asset to be utilised. The carrying amount of deferred tax assets Group recognises restructuring-related costs. When a settlement The Company uses interest derivatives to hedge its risks associated with point it is taken to the income statement or included in the initial carrying Governance (eliminating all obligations for benefits already accrued) or a curtailment is reviewed at each balance sheet date and reduced to the extent that it is interest rate fluctuations. Such derivatives are initially recognised at fair amount of the related non-financial asset as described above. If a hedged (reducing future obligations as a result of a material reduction in the no longer probable that sufficient taxable profit will be available to allow value by reference to market values for similar instruments, and transaction is no longer expected to occur, the net cumulative gain or loss scheme membership or a reduction in future entitlement) occurs, the all or part of the deferred income tax asset to be utilised. subsequently re-measured at fair value at each balance sheet date. recognised in other comprehensive income is transferred to the obligation and related plan assets are remeasured using current actuarial Tax relating to items recognised outside the income statement Financial instruments are accounted for in accordance with IAS 39. income statement. assumptions and the resultant gain or loss is recognised in the income is recognised in other comprehensive income or directly in equity in Financial instruments are initially recognised at fair value, being the Software statement during the period in which the settlement or curtailment occurs. correlation with the underlying transaction. Otherwise, tax is recognised transaction price plus, in the case of financial instruments not recorded at Software, that is not integral to the related hardware, is capitalised as an in the income statement. fair value through profit or loss, directly attributable transaction costs. The defined benefit pension asset or liability in the balance sheet intangible asset and stated at cost less amortisation and any impairment comprises the present value of the defined benefit obligation (using a Financial statements Uninsured liabilities in value. Amortisation is charged to the income statement evenly over discount rate based on high quality corporate bonds), less the fair value of The Company limits its exposure to the cost of motor, employer and its expected useful life of three to five years. plan assets out of which obligations are to be settled directly for The Go- public liability claims through insurance policies issued by third parties. Ahead Group Pension Plan. Fair value is based on market price These provide individual claim cover, subject to high excess limits and an 2. Dividends information and in the case of quoted securities is the published bid price. annual aggregate stop loss for total claims within the excess limits. A Dividends are one type of shareholder return, historically paid to our shareholders in April and November. For the defined contribution schemes, the amount charged to the income provision is recognised for the estimated cost to the Company to settle 2016 2015 statement in respect of pension costs and other post-retirement benefits claims for incidents occurring prior to the balance sheet date, subject to £m £m is the contributions payable in the year. Differences between contributions the overall stop loss. Declared and paid during the year payable in the year and contributions actually paid are shown as either The estimation of this provision is made after taking appropriate Equity dividends on ordinary shares: Shareholder information accruals or prepayments in the balance sheet. professional advice and is based on an assessment of the expected Final dividend for 2015: 63.4p per share (2014: 59.0p) 27.2 25.3 Share based payments settlement on known claims, together with an estimate of settlements that Interim dividend for 2016: 28.33p per share (2015: 26.6p) 12.2 11.4 The cost of options granted to employees is measured by reference to will be made in respect of incidents occurring prior to the balance sheet 39.4 36.7 the fair value at the date at which they are granted, determined by an date but that have not yet been reported to the Company. external valuation using an appropriate pricing model. In granting equity- Treasury shares 2016 2015 settled options, conditions are linked to some or all of the following: the Re-acquired shares in the Company, which remain uncancelled, are price of the shares of The Go-Ahead Group plc (market conditions); £m £m deducted from equity. Consideration paid and the associated costs are Proposed for approval at the AGM (not recognised as a liability as at 2 July 2016) conditions not related to performances or service (non-vesting condition); also recognised in shareholders’ funds as a separate reserve for own Equity dividends on ordinary shares: performance conditions (a vesting condition); and service conditions shares. Any gain or loss on the purchase, sale, issue or cancellation of the (a vesting condition). Company’s shares is transferred from the reserve for own shares to Final dividend for 2016: 67.52p per share (2015: 63.4p) 29.0 27.2 The cost of options is recognised in the income statement over the period revenue reserves. from grant to vesting date, being the date on which the relevant Interest bearing loans and borrowings employees become fully entitled to the award, with a corresponding increase in equity. The cumulative expense recognised, at each reporting Debt is initially stated at the amount of the net proceeds, being the fair date, reflects the extent to which the period to vesting has expired and value of the consideration received after deduction of issue costs. the directors’ best estimate of the number of options that will ultimately Following initial recognition, the carrying amount is measured at amortised vest or, in the case of an instrument subject to a market or non-vesting cost using the effective interest method. Amortisation of liabilities and any condition, be treated as vesting as described above. This includes any gains and losses arising on the repurchase, settlement or other award where non-vesting conditions within the control of the Group or derecognition of debt are recognised directly in the income statement. the employee are not met. Assets held under finance leases, which are leases where substantially No cost is recognised for awards that do not ultimately vest, except for all of the risks and rewards of ownership of the asset have passed to the awards where vesting is conditional upon a market or non-vesting Company, are capitalised in the balance sheet, with a corresponding condition. These are treated as vesting irrespective of whether or not the liability being recognised, and are depreciated over the shorter of their market or non-vesting condition is satisfied, provided that all other useful lives and the lease terms. performance and/or service conditions are satisfied. Where an equity- The capital elements of future obligations under leases are included settled award is cancelled, it is treated as if it had vested on the date of as liabilities in the balance sheet. cancellation, and any cost not yet recognised for the award is recognised immediately.

The Go-Ahead Group plc I www.go-ahead.com 165 Notes to the Company financial statements continued

3. Intangible assets Software £m Cost or valuation: At 27 June 2015 10.1 Additions 0.8 At 2 July 2016 10.9

Amortisation: At 27 June 2015 8.3 Charge for the year 1.1 At 2 July 2016 9.4

Net book value: At 2 July 2016 1.5 At 27 June 2015 1.8 4. Tangible assets Long term Short term Freehold land leasehold land leasehold land Plant and and buildings and buildings and buildings equipment Total £m £m £m £m £m Cost or valuation: At 27 June 2015 169.4 0.4 4.4 9.9 184.1 Additions 12.9 – – 0.4 13.3 Disposals (1.7) – – – (1.7) At 2 July 2016 180.6 0.4 4.4 10.3 195.7

Depreciation: At 27 June 2015 11.9 – 1.3 8.0 21.2 Charge for the year 0.6 – 0.3 0.9 1.8 At 2 July 2016 12.5 – 1.6 8.9 23.0

Net book value: At 2 July 2016 168.1 0.4 2.8 1.4 172.7 At 27 June 2015 157.5 0.4 3.1 1.9 162.9

Freehold land and buildings include non-depreciable land amounting to £117.0m (2015: £111.3m).

166 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the Company financial statements continued

3. Intangible assets 5. Investments Loans to Shares in Group Software Group companies Total £m £m £m £m Cost or valuation: Cost: At 27 June 2015 10.1 At 2 July 2016 and 27 June 2015 63.2 151.9 215.1 Additions 0.8

At 2 July 2016 10.9 Provisions: At 2 July 2016 and 27 June 2015 – – – Amortisation:

report Strategic At 27 June 2015 8.3 Net carrying amount: Charge for the year 1.1 At 2 July 2016 and 27 June 2015 63.2 151.9 215.1 At 2 July 2016 9.4 During the year ended 28 June 2014, The Go-Ahead Group plc undertook a transaction involving certain properties used by the Group. This has been Net book value: accounted for as a sale and leaseback and results in a long term investment of £63.2m in an intermediate Group company. At 2 July 2016 1.5 For details of the subsidiary undertakings as at 2 July 2016, refer to note 28 of the Group financial statements. At 27 June 2015 1.8 6. Debtors 4. Tangible assets Amounts falling due within one year Long term Short term Governance 2015 Freehold land leasehold land leasehold land Plant and (restated – and buildings and buildings and buildings equipment Total 2016 see note 9) £m £m £m £m £m £m £m Cost or valuation: Amounts owed by Group companies 552.9 640.0 At 27 June 2015 169.4 0.4 4.4 9.9 184.1 Corporation tax 8.7 11.1 Additions 12.9 – – 0.4 13.3 Other debtors 12.6 9.6 Disposals (1.7) – – – (1.7) 574.2 660.7

At 2 July 2016 180.6 0.4 4.4 10.3 195.7 Financial statements Amounts falling due after more than one year 2015 Depreciation: (restated – At 27 June 2015 11.9 – 1.3 8.0 21.2 2016 see note 9) Charge for the year 0.6 – 0.3 0.9 1.8 £m £m At 2 July 2016 12.5 – 1.6 8.9 23.0 Amounts owed by Group companies 14.9 16.3 14.9 16.3 Net book value:

7. Creditors Shareholder information At 2 July 2016 168.1 0.4 2.8 1.4 172.7 At 27 June 2015 157.5 0.4 3.1 1.9 162.9 Amounts falling due within one year 2015 Freehold land and buildings include non-depreciable land amounting to £117.0m (2015: £111.3m). (restated – 2016 see note 9) £m £m Amounts owed to Group undertakings 50.8 95.1 Other creditors 15.5 18.9 Finance leases (note 8) 1.3 1.1 67.6 115.1 Amounts falling due after more than one year 2015 (restated – 2016 see note 9) £m £m Interest-bearing loans and borrowings repayable: In more than one year but not more than five years 199.1 198.2 Finance leases (note 8) 69.9 71.2 Amounts owed to Group undertakings 0.2 – 269.2 269.4

Included in finance leases is an amount of £71.2m (2015: £72.3m) owing to Group undertakings. The Company has no security over its liabilities.

The Go-Ahead Group plc I www.go-ahead.com 167 Notes to the Company financial statements continued

8. Finance leases During the year ended 28 June 2014, The Go-Ahead Group plc undertook a sale and leaseback of certain properties used by the Group. Future minimum lease payments under finance leases, together with the present value of the net minimum lease payments, for the sale and leaseback of these properties are as follows: 2016 2015 Minimum value of Present value of Minimum value of Present value of payments payments payments payments £m £m £m £m Within one year 4.4 1.3 4.2 1.1 After one year but not more than five years 18.8 7.1 18.2 6.2 After five years 86.4 62.8 91.3 65.0 Total minimum lease payments 109.6 71.2 113.7 72.3 Less amounts representing finance charges (38.4) – (41.4) – Present value of minimum lease payments 71.2 71.2 72.3 72.3 9. Financial instruments The fair values of the Group's financial instruments carried in the financial statements have been reviewed as at 2 July 2016 and 27 June 2015 and are as follows: 2015 2016 (restated) £m £m Financial assets due after more than one year 0.2 – Financial assets due within one year 0.6 – 0.8 – Financial liabilities due within one year (10.3) (19.1) Financial liabilities due after more than one year (4.1) (5.5) (14.4) (24.6) Net financial instruments (13.6) (24.6)

Following the adoption of IFRS as the reporting framework across the Group’s bus subsidiaries for the year ended 2 July 2016 the Directors have reviewed the treatment under IFRS of all the Group’s intercompany trading arrangements. As part of this process they have considered the associated balance sheet treatment of the fuel hedge contracts which are transacted by the plc company and then contracted ‘back to back’ through the bus and rail trading subsidiaries. These were previously treated as if they were passed through to the subsidiaries involved. Following the review it has been determined that the accounting treatment should be corrected to show the positions contracted with external parties and the corresponding financial asset or liability due from or to the subsidiary involved. This has had no impact on profit or loss for the period with the offsetting assets and liabilities now recognised in the balance sheet with the comparatives restated. There has been no change to the accounting policies or practices in the consolidated accounts as a result of this change. 10. Provisions Deferred taxation (note 11) Uninsured claims Other Total £m £m £m £m As at 27 June 2015 13.3 7.3 0.3 20.9 Provided (after discounting) – 1.7 – 1.7 Released – (3.4) – (3.4) Utilised – 0.9 – 0.9 Deferred tax debited to profit and loss 0.6 – – 0.6 Deferred tax on LTIP debited outside of profit and loss 0.5 – – 0.5 Deferred tax on defined benefit pension plans debited outside of profit and loss 11.3 – – 11.3 Unwinding of discounting – 0.3 – 0.3 As at 2 July 2016 25.7 6.8 0.3 32.8

Uninsured claims represent the cost to the Group to settle claims for incidents occurring prior to the balance sheet date based on an assessment of the expected settlement, together with an estimate of settlements that will be made in respect of incidents that have not yet been reported to the Group by the insurer, subject to the overall stop loss. It is estimated that the majority of uninsured claims will be settled within six years. The other provision relates to dilapidation costs. It is expected that the dilapidations will be incurred within two to three years.

168 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the Company financial statements continued

8. Finance leases 11. Deferred taxation During the year ended 28 June 2014, The Go-Ahead Group plc undertook a sale and leaseback of certain properties used by the Group. Future Deferred taxation provided at the enacted rate is as follows: minimum lease payments under finance leases, together with the present value of the net minimum lease payments, for the sale and leaseback of these 2016 2015 properties are as follows: £m £m 2016 2015 Capital allowances in advance of depreciation 3.5 3.0 Minimum value of Present value of Minimum value of Present value of Other timing differences 8.6 6.2 payments payments payments payments £m £m £m £m Revaluation of land and buildings treated as deemed cost on conversion to IFRS 13.3 15.4 Within one year 4.4 1.3 4.2 1.1 Retirement benefit obligations 0.3 (11.3) After one year but not more than five years 18.8 7.1 18.2 6.2 Deferred taxation (note 10) 25.7 13.3 Strategic report Strategic After five years 86.4 62.8 91.3 65.0 12. Pension commitments Total minimum lease payments 109.6 71.2 113.7 72.3 Less amounts representing finance charges (38.4) – (41.4) – Defined contribution Present value of minimum lease payments 71.2 71.2 72.3 72.3 During the year ended 2 July 2016, the Company participated in the defined contribution scheme of The Go-Ahead Group Pension Plan (the Go-Ahead Plan). This scheme is not contracted-out of the State Second Pension Scheme. It is now closed to new entrants and has been replaced by a workplace 9. Financial instruments saving scheme, which is also a defined contribution pension scheme. The expense recognised in these accounts for the year in respect of the defined The fair values of the Group's financial instruments carried in the financial statements have been reviewed as at 2 July 2016 and 27 June 2015 and are contribution scheme of the Go-Ahead Plan was £0.4m (2015: £0.4m), being the contributions paid and payable. The expense recognised for the as follows: workplace saving scheme was less than £0.1m (2015: less than £0.1m), being the contributions paid and payable. 2015 Defined benefit 2016 (restated) During the year ended 2 July 2016, the Company participated in a scheme which is part of the Go-Ahead Plan. The assets of the scheme are held Governance £m £m separately from those of the Company in an independently administered fund. Financial assets due after more than one year 0.2 – Financial assets due within one year 0.6 – The defined benefit section of The Go-Ahead Group Pension Plan has been closed to new entrants and closed to future accrual. 0.8 – The most recent actuarial valuation of the scheme was at 31 March 2015 and was updated by Willis Towers Watson to take account of the Financial liabilities due within one year (10.3) (19.1) requirements of IAS 19 (revised) in order to assess the liabilities of the scheme at 2 July 2016. Financial liabilities due after more than one year (4.1) (5.5) The total net assets and liabilities of the scheme are recognised on the Company balance sheet. (14.4) (24.6) The following disclosures provide details of the entire defined benefit scheme. Net financial instruments (13.6) (24.6) The main assumptions are: Financial statements 2016 2015 Following the adoption of IFRS as the reporting framework across the Group’s bus subsidiaries for the year ended 2 July 2016 the Directors have % % reviewed the treatment under IFRS of all the Group’s intercompany trading arrangements. As part of this process they have considered the associated Rate of increase in salaries n/a n/a balance sheet treatment of the fuel hedge contracts which are transacted by the plc company and then contracted ‘back to back’ through the bus and Rate of increase of pensions in payment and deferred pensions 1.9 2.0 rail trading subsidiaries. These were previously treated as if they were passed through to the subsidiaries involved. Following the review it has been determined that the accounting treatment should be corrected to show the positions contracted with external parties and the corresponding financial Discount rate 2.8 3.8 asset or liability due from or to the subsidiary involved. This has had no impact on profit or loss for the period with the offsetting assets and liabilities Retail price index inflation 2.9 3.3 now recognised in the balance sheet with the comparatives restated. There has been no change to the accounting policies or practices in the Consumer price index inflation 1.9 2.3 Shareholder information consolidated accounts as a result of this change. The most significant non-financial assumption is the assumed rate of longevity. The table below shows the life expectancy assumptions used in the 10. Provisions accounting assessments based on the life expectancy of a male member of the pension scheme at age 65. Deferred taxation 2016 2015 (note 11) Uninsured claims Other Total Years Years £m £m £m £m Pensioner 21 20 As at 27 June 2015 13.3 7.3 0.3 20.9 Non-pensioner 22 21 Provided (after discounting) – 1.7 – 1.7 Released – (3.4) – (3.4) Sensitivity analysis Utilised – 0.9 – 0.9 In making the valuation, the above assumptions have been used. For The Go-Ahead Group Pension Plan, the following is an approximate sensitivity Deferred tax debited to profit and loss 0.6 – – 0.6 analysis of the impact of the change in the key assumptions. In isolation, the following adjustments would adjust the pension deficit as shown. Deferred tax on LTIP debited outside of profit and loss 0.5 – – 0.5 2016 2015 Pension deficit Pension deficit Deferred tax on defined benefit pension plans debited outside of profit and loss 11.3 – – 11.3 % % Unwinding of discounting – 0.3 – 0.3 Discount rate – increase of 0.1% (1.7) (1.7) As at 2 July 2016 25.7 6.8 0.3 32.8 Price inflation – increase of 0.1% 1.5 1.5 Rate of increase in salaries – increase of 0.1% n/a n/a Uninsured claims represent the cost to the Group to settle claims for incidents occurring prior to the balance sheet date based on an assessment of the expected settlement, together with an estimate of settlements that will be made in respect of incidents that have not yet been reported to the Group Rate of increase of pensions in payment – increase of 0.1% 0.9 0.9 by the insurer, subject to the overall stop loss. It is estimated that the majority of uninsured claims will be settled within six years. Increase in life expectancy of pensioners or non-pensioners by 1 year 3.6 3.6 The other provision relates to dilapidation costs. It is expected that the dilapidations will be incurred within two to three years. The sensitivity analysis presented above has been calculated using approximate methods. The use of 0.1% and 1 year in the sensitivity analysis is considered to be a reasonable approximation of possible changes, as these variations can regulary arise.

The Go-Ahead Group plc I www.go-ahead.com 169 Notes to the Company financial statements continued

12. Pension commitments continued Maturity profile of defined benefit obligation The following table shows the expected future benefit payments of the plan. 2016 £m June 2017 22.5 June 2018 23.0 June 2019 23.5 June 2020 24.1 June 2021 24.6 June 2022 to June 2026 131.5 Category of assets at the year end 2016 2015 £m % £m % Equities 266.8 35.5 245.3 37.9 Bonds 15.8 2.1 14.9 2.3 Property 68.4 9.1 60.2 9.3 Liability driven investing portfolio 392.3 52.2 306.1 47.3 Cash/other 8.2 1.1 20.7 3.2 751.5 100.0 647.2 100.0

All of the asset categories above are held within pooled funds and are therefore quoted in active markets. Funding position of the Group’s pension arrangements 2016 2015 £m £m Employer’s share of pension scheme: Liabilities at the end of the year (750.0) (703.9) Assets at fair value 751.5 647.2 Pension scheme assets / (liabilities) 1.5 (56.7) Deferred tax (liability) / asset (0.3) 11.3 Post-tax pension scheme assets / (liabilities) 1.2 (45.4) Pension cost for the financial year 2016 2015 £m £m Administration costs 1.8 2.2 Settlement (gain) / loss (0.5) 0.5 Interest cost on net liabilities 2.0 2.3 Total pension costs 3.3 5.0 Analysis of the change in the pension scheme liabilities over the financial year 2016 2015 £m £m Pension scheme liabilities – at start of year 703.9 648.8 Interest cost 25.9 26.6 Remeasurement (gains)/losses due to: Experience on benefit obligations (68.8) (21.9) Changes in demographic assumptions 10.6 – Changes in financial assumptions 101.0 93.1 Settlement gain (0.5) – Transfer payments (bulk) – (17.9) Benefits paid (22.1) (24.8) Pension scheme liabilities – at end of year 750.0 703.9

170 The Go-Ahead Group plc I Annual Report and Accounts 2016 Notes to the Company financial statements continued

12. Pension commitments continued Analysis of the change in the pension scheme assets over the financial year 2016 2015 Maturity profile of defined benefit obligation £m £m The following table shows the expected future benefit payments of the plan. Fair value of assets – at start of year 647.2 591.7 2016 Interest income on plan assets 23.9 24.3 £m Remeasurement gains due to return on assets greater than discount rate 99.5 71.9 June 2017 22.5 Administration costs (1.8) (2.2) June 2018 23.0 Group contributions 4.8 4.7 June 2019 23.5 Transfer payments (bulk) – (18.4) June 2020 24.1

Benefits paid (22.1) (24.8) report Strategic June 2021 24.6 Fair value of plan assets – at end of year 751.5 647.2 June 2022 to June 2026 131.5 Estimated contributions for future Category of assets at the year end £m 2016 2015 Estimated Group contributions in financial year 2017 6.5 £m % £m % Estimated employee contributions in financial year 2017 – Equities 266.8 35.5 245.3 37.9 Estimated total contributions in financial year 2017 6.5 Bonds 15.8 2.1 14.9 2.3 Property 68.4 9.1 60.2 9.3 Risks associated with defined benefit plans Liability driven investing portfolio 392.3 52.2 306.1 47.3 Risks associated with the defined benefit plan are outlined in note 27 to the Group financial statements. Governance Cash/other 8.2 1.1 20.7 3.2 13. Issued capital and reserves 751.5 100.0 647.2 100.0 Allotted, called up and fully paid All of the asset categories above are held within pooled funds and are therefore quoted in active markets. 2016 2015 Millions £m Millions £m Funding position of the Group’s pension arrangements As 2 July 2016 and 27 June 2015 46.9 4.7 46.9 4.7 2016 2015 £m £m The Company has one class of ordinary shares which carry no right to fixed income and have a par value of 10p per share.

Employer’s share of pension scheme: Financial statements The reserve for own shares is in respect of 4,017,412 ordinary shares (8.6% of total share capital), of which 115,182 are held for LTIP and DSBP Liabilities at the end of the year (750.0) (703.9) arrangements. The remaining shares were purchased in order to enhance shareholders’ returns and are being held as treasury shares for re-issue in Assets at fair value 751.5 647.2 appropriate circumstances. During the year ended 2 July 2016 the Company has repurchased 172,964 shares (2015: no shares purchased). The Pension scheme assets / (liabilities) 1.5 (56.7) Company has not cancelled any shares during the year (2015: no shares cancelled). Deferred tax (liability) / asset (0.3) 11.3 The revaluation reserve represents the value of properties involved in an asset backed funding transaction with the Go-Ahead Pension Plan, adjusted for Post-tax pension scheme assets / (liabilities) 1.2 (45.4) amortisation, together with historic revaluation balances. The movement on the revaluation reserve represents the write down of the revaluation reserve over the expected useful life of the properties, offsetting the depreciation charges being taken to the profit or loss account. Pension cost for the financial year 2016 2015 The share premium reserve represents the premium on shares that have been issued to fund or part fund acquisitions made by the Group. This £m £m treatment is in line with Section 612 of the Companies Act 2006. Shareholder information Administration costs 1.8 2.2 The information required by Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations Settlement (gain) / loss (0.5) 0.5 2013 is provided in the directors’ report. Interest cost on net liabilities 2.0 2.3 The audit fee payable in respect of the Company was £0.1m (2015: £0.1m). Other fees payable to the auditor in respect of the Company were less Total pension costs 3.3 5.0 than £0.1m (2015: less than £0.1m). Please refer to note 5 of the Group consolidated financial statements. Analysis of the change in the pension scheme liabilities over the financial year 14. Operating lease commitments 2016 2015 £m £m The Company’s future minimum rentals payable under non-cancellable operating leases as at 2 July 2016 and 27 June 2015 are as follows: Pension scheme liabilities – at start of year 703.9 648.8 Bus property Interest cost 25.9 26.6 2016 2015 £m £m Remeasurement (gains)/losses due to: Within one year 0.2 0.6 Experience on benefit obligations (68.8) (21.9) In second to fifth years 1.1 0.8 Changes in demographic assumptions 10.6 – More than five years 1.3 1.0 Changes in financial assumptions 101.0 93.1 2.6 2.4 Settlement gain (0.5) –

Transfer payments (bulk) – (17.9) Benefits paid (22.1) (24.8) Pension scheme liabilities – at end of year 750.0 703.9

The Go-Ahead Group plc I www.go-ahead.com 171 Notes to the Company financial statements continued

15. Capital commitments There were capital commitments of £nil at 2 July 2016 (2015: £nil). 16. Contingent liabilities The Company provides guarantees in respect of bank and equipment finance borrowings of the subsidiaries of The Go-Ahead Group plc. The Company has issued guarantees dated 30 March 2006 to participating subsidiaries of The Go-Ahead Group Pension Plan in respect of scheme liabilities arising. Total assets in respect of this guaranteed scheme were £1.2m as at 2 July 2016 (2015: liabliity of £45.4m). At 2 July 2016 letters of credit amounting to £45.0m (2015: £45.0m) were provided by a Company banker, guaranteed by the Company, in favour of one of the Group’s insurers, to cover liabilities of the Company and its subsidiaries. 17. Share based payments Full disclosures of the Group’s Sharesave scheme, SIP, LTIP and DSBP are given in note 6 to the Group financial statements. 18. Related party transactions The Company has taken advantage of the exemption under FRS101, and transactions with 100% subsidiaries of The Go-Ahead Group plc have not been disclosed. The Company owns 65% of the ordinary shares in Govia Limited. London and Southeastern Railway Limited (Southeastern), London and Birmingham Railway Limited (London Midland), Thameslink Rail Limited (Thameslink), New Southern Railway Limited (New Southern), Southern Railway Limited (Southern) and Govia Thameslink Railway Limited (GTR) are 100% owned by Govia Limited and hence the Company owns a 65% interest.

Govia Southeastern London Midland Thameslink New Southern Southern GTR 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 £m £m £m £m £m £m £m £m £m £m £m £m £m £m Interest paid to related party 0.3 0.3 – – – – – – – – – – – – Loans to related party – (90.0) – – – – – – – – – – – – Repayment of loan from related party – 28.0 – – – – – – – – – – – – Management charges – – 2.3 1.3 1.5 1.1 – – – – 0.1 1.3 2.5 2.2 Amounts owed from related party 30.2 30.4 1.8 – 0.7 1.8 – – – – – – 7.1 16.9 Amounts owed to related party – – – 1.8 – – 0.6 0.6 11.0 11.0 – 8.7 – –

During the year Southeastern, London Midland, Southern and GTR have traded with wholly owned subsidiaries of the Company; £13.1m (2015: £16.6m) of costs were incurred by Southeastern, London Midland, Southern and GTR on an arm’s length basis.

172 The Go-Ahead Group plc I Annual Report and Accounts 2016 Shareholder information

Financial calendar Managing your shares The Group’s Registrar, Equiniti, is responsible for maintaining our register of Final dividend record date 11 November 2016 members. Shareholders with queries relating to their shareholding should AGM 3 November 2016 contact Equiniti directly.

Final dividend payment date 25 November 2016 Shareholders can sign up for a Shareview portfolio which enables you to:

Half year end 31 December 2016 • View information regarding your holding • Change your address and bank details online Half year results announcement 23 February 2017 • Sell or purchase shares in the Group online Strategic report Strategic Half year dividend payment April 2017 Go to www.shareview.co.uk and click on ‘Shareview Portfolio: find out more & register’ to sign up for these services. When completing your details you Next financial year end 1 July 2017 will need your shareholder reference number which is the 11 digit number Full year results announcement 7 September 2017 found on your latest tax voucher or share certificate.

Annual general meeting Duplicate documents The 29th AGM of the Group will be held at the Hilton Newcastle If you have more than one registered shareholder account, you will receive Gateshead, Bottle Bank, Gateshead, NE8 2AR on Thursday 3 November duplicate documentation and split dividend payments. To request that your

2016 at 11.00am. Details of the business to be considered can be found in accounts be combined, please contact Equiniti. Governance the Notice of Meeting which will be available on the Group’s corporate website (www.go-ahead.com) from 30 September 2016. Electronic communications As far as possible, the Group provides shareholder documents via the Dividend payments corporate website. If you wish to receive future shareholder communications The dividend dates are available on our corporate website in the financial electronically, please sign up via Shareview (see ‘Managing your shares’ calendar. Following each dividend payment date we will send a tax voucher section). By electing to receive shareholder communications electronically to your home address. Please therefore ensure that Equiniti have your you will be allowing us to communicate with you securely in a more Financial statements correct address and bank details. environmentally friendly and cost effective way.

We recommend that you arrange for your dividends to be paid directly into Warning to shareholders your bank account: Shareholders are advised to be extremely cautious of any unsolicited advice • To avoid the risk of losing a cheque in the post and thereby incurring a from third parties; offers to buy shares at a discount; or offers of free reports replacement fee about the Group. By law, the Group’s register of members is open to public • For faster receipt of your dividend which is paid into your account on the inspection however, we do not endorse any specific share dealing facilities; will not pass on shareholder information to any third party; and any requests

payment date, rather than waiting for a cheque to be delivered, deposited Shareholder information and cleared for access to the register are subject to ‘proper purpose’ requirements which ensure that personal data is not used unlawfully. To select this method of dividend payment, please contact Equiniti directly using the details on page 176.

The Go-Ahead Group plc I www.go-ahead.com 173 Shareholder information continued

Shareholder profile by size of holding as at 2 July 2016

% Issued share No. of holdings % Total shares held capital

1-10,000 2,875 92.32 2,093,532 4.46

10,001-100,000 166 5.33 5,818,143 12.40

100,001-500,000 51 1.64 10,717,220 22.85

500,001-1,000,000 13 0.42 9,461,990 20.17

Over 1,000,001 9 0.29 18,816,924 40.12

Total 3,114 100 46,907,809* 100

* This total includes 3,902,230 shares held in treasury.

Shareholder profile by category as at 2 July 2016

Number of No. of holdings shares % of holdings % of shares

Treasury shares 1 3,902,230 0.03 8.32

Directors 6 49,939 0.19 0.11

Other individuals 2,437 3,934,199 78.26 8.39

Institutional investors 670 39,021,441 21.52 83.18

Total 3,114 46,907,809* 100 100

* This total includes 3,902,230 shares held in treasury. It should be noted that many private investors hold their shares through nominee companies, therefore, the percentage of shares held by private holders is likely to be higher than that shown.

Major shareholders In accordance with Rule 5.1.2R of the UK Listing Authority’s Disclosure and Transparency Rules, the Group had received the following notifications of 3% or more over the Group’s total voting rights and capital in issue as at 2 July 2016 and 8 September 2016 (being the latest practical date prior to the date of this report):

Number of shares Number of shares held as at 2 July % of voting Nature held as at 8 % of voting Nature 20161 rights held of holding September 20161 rights held of holding

JPMorgan Asset Management (UK) Limited 2,129,423 4.95 Direct 2,129,423 4.95 Direct

Ameriprise Financial, Inc. and its group 2,714,875 6.31 Direct (0.02%) & 2,714,875 6.31 Direct (0.02%) indirect (6.29%) & indirect (6.29%)

Old Mutual plc 2,666,116 6.20 Indirect (6.18) & 121,050 0.28 Indirect (0.28%) CFD2 (0.02%) & CFD2 (0.00%)

Henderson Group plc – – – 2,101,238 4.88 Indirect

1. These holdings include, where applicable, the aggregate of investment management clients’ interests within the respective asset management companies. No further notifications have been received; however, the above holdings may have changed without triggering a further notification. 2. Contract for Difference.

174 The Go-Ahead Group plc I Annual Report and Accounts 2016 Shareholder and control structure The authorities for the Group to allot relevant securities (up to an aggregate As at 2 July 2016, the Group’s issued share capital comprised a single class of nominal amount of £1,433,471, and for the disapplication of pre-emption shares referred to as ordinary shares, with a nominal value of 10p each. As at rights on the allotment of equity securities (for cash up to an aggregate this date, there were 46,907,809 ordinary shares in issue, of which 3,902,230 nominal amount of £215,021), as passed by ordinary and special resolutions were held in treasury. at the 2015 AGM, were not utilised in the financial year or up to the date of this report. The Group did not purchase any of its own shares during the year either for cancellation or to hold as treasury shares, and no such shares were These authorities will expire at the 2016 AGM and approval for new purchased between the period end and the date of this report. However, authorities will be sought. In the last three years no shares have been issued Computershare Trustees (Jersey) Limited, the Trustees of The Go-Ahead on a non-preemptive basis, other than those issued under all-employee Group Employee Trust (the Trust), purchased 172,964 ordinary shares of share schemes which are not included for the purposes of this authority. report Strategic 10p each in the Group as part of a planned program of share purchases The authority for the Group to make market purchases of its own ordinary (2015: nil) to satisfy awards made under the Group’s Long Term Incentive shares, as passed by special resolution at the 2015 AGM, was still in effect at Plan and Deferred Share Bonus Plan awards. Since the period end and the the end of the financial year and will expire at the 2016 AGM when approval date of this report, the Trust purchased 32,704 ordinary shares of 10p each for a new authority will be sought. in the Group. Under the existing authority the maximum aggregate number of shares that The Group is not aware of any agreements between shareholders that may can be purchased is 4,300,412. The authority also limits the maximum result in restrictions on the transfer of securities or on voting rights number of shares held in treasury to 10% of the issued share capital of the other than:

Group and states minimum and maximum prices payable for shares Governance • Certain restrictions which may from time to time be imposed by laws and purchased under the authority. During the financial year this authority was regulations (for example, insider trading laws) not utilised. • Restrictions pursuant to the Listing Rules of the Financial Conduct Each of the Group’s rail franchise agreements is subject to change of control Authority whereby certain employees of the Group require the approval criteria that would mean, on a change of control, there would be deemed to of the Group to deal in the Group’s securities be an ‘event of default’ that could potentially terminate the rail franchise. This is, however, subject to the discretion of the Secretary of State. Additionally, All shareholders have the same voting rights for each share, regardless of the the Group’s sterling bond issue dated 24 March 2010, the revolving credit total number of shares held. On a show of hands at a general meeting of the Financial statements facility dated 16 July 2014 and the term loan dated 26 August 2016 are Group, every holder of shares present in person or by proxy and entitled to subject to change of control clauses that contain certain specified conditions vote shall have one vote (except in the circumstance where a proxy has which could lead to a compulsory prepayment of the bond and loan been appointed by more than one member, in which case he or she will respectively. Transport for London also has powers to prevent the operation have one vote for and one vote against if he or she has been instructed by of London Bus contracts by an existing operator which is the subject of a one or more members to vote for the resolution and by one or more change of control. members to vote against). On a poll, every member present in person or by proxy and entitled to vote has one vote for every ordinary share held. The Corporate website Notice of Meeting specifies deadlines for exercising voting rights either in Shareholder information person or by proxy in relation to resolutions to be passed at the 2016 AGM. Our corporate website www.go-ahead.com provides a wealth of All proxy votes are counted and the numbers for, against or withheld in information on the Group and its activities. Information available on the site relation to each resolution are announced as soon as practicable includes half year results and interim management statements, which are not following the AGM and published on the Group’s corporate website sent to shareholders, as well as share price data, dividend information and (www.go-ahead.com) after the meeting. the financial calendar. You can register to receive email alerts when the website has been updated with announcements, press releases and other publications.

The Go-Ahead Group plc I www.go-ahead.com 175 Corporate information www.go-ahead.com Joint Corporate Broker [email protected] Investec Bank plc 2 Gresham Street Secretary and Registered Office London, EC2V 7QP Carolyn Ferguson The Go-Ahead Group plc Joint Corporate Broker 3rd Floor, 41-51 Grey Street Jefferies Hoare Govett Ltd Newcastle upon Tyne, NE1 6EE Vintners Place Tel: 0191 232 3123 Upper Thames Street London, EC4V 3BJ Head Office The Go-Ahead Group plc Principal Banker 4 Matthew Parker Street, The Royal Bank of Scotland plc London, SW1H 9NP Corporate Banking 8th Floor, 135 Bishopsgate Tel: 020 7799 8999 London, EC2M 3UR

Registrar Financial PR Advisors Equiniti Ltd Citigate Dewe Rogerson Aspect House, Spencer Road 3 London Wall Buildings Lancing London, EC2M 5SY West Sussex, BN99 6DA Tel: 0371 384 2193*

Auditor Deloitte LLP 2 New Street Square London, EC4A 3BZ * Lines are open 8:30am to 5:30pm Monday to Friday

176 The Go-Ahead Group plc I Annual Report and Accounts 2016 This report is printed on Arctic Matt paper. Manufactured at a mill that is FSC® accredited, certified to both ISO 14001 Environmental Management and the European Eco-Management and Audit Schemes Printed by Principal Colour. Principal Colour are ISO 14001 certified, alcohol free and FSC® Chain of Custody certified Photography by Martin Burton www.martin-burton.squarespace.com

Summary verification statement from Bureau Veritas UK Ltd Bureau Veritas UK Ltd has provided verification for The Go-Ahead Group plc over selected sustainability Key Performance Indicators (KPI) data contained within the Group’s annual report covering the period 28 June 2015 to 2 July 2016. The full verification statement including the verification scope and Bureau Veritas’ verification opinion, methodology, areas of good practice, recommendations and a statement of independence and impartiality can be found on The Go‑Ahead Group website: www.go-ahead.com/sustainability Designed and produced by Black Sun Plc Registered Office The Go-Ahead Group plc 3rd Floor 41–51 Grey Street Newcastle Upon Tyne NE1 6EE Tel: +44 (0) 191 232 3123 Head Office The Go-Ahead Group plc 4 Matthew Parker Street Westminster London SW1H 9NP Tel: +44 (0) 20 7799 8999 www.go-ahead.com [email protected]